virginia college savings plan annual report

Virginia College Savings PlanAnnual ReportFor the period ended on June 30, 2018

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- T A B L E O F C O N T E N T S -

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INDEPENDENT AUDITOR’S REPORT 1 – 4 MANAGEMENT’S DISCUSSION AND ANALYSIS 7 -20

FINANCIAL STATEMENTS:

Statement of Net Position – Enterprise Fund 23 Statement of Revenues, Expenses, and Changes in Net Position – Enterprise Fund 24 Statement of Cash Flows – Enterprise Fund 25 - 26 Statement of Fiduciary Net Position – Private-Purpose Trust Fund 27 Statement of Changes in Fiduciary Net Position – Private-Purpose Trust Fund 28 Notes to the Financial Statements 31 - 66 Required Supplementary Information 69 – 75 Supplementary Information 79 – 84 Other Information 87 – 91

BOARD MEMBERS 93

Committee Assignments 94

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Independent Auditor’s Report

To: Members of the Board Virginia College Savings Plan N. Chesterfield, VA 23236

Report on the Financial Statements We have audited the accompanying financial statements of the business type activities (the Enterprise Fund) and the remaining fund information (the Private Purpose Trust Fund) of the Virginia College Savings Plan ( the Plan) as of and for the year ended June 30, 2018, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business type activities and the remaining fund information of the Virginia College Savings Plan as of June 30, 2018, and its respective changes in net position for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matters

Reporting Entity As discussed in Note 1, the financial statements of the Plan, are intended to present the financial net position, the changes in financial net position and cash flows of only that portion of the business-type activities, and the aggregate remaining information that is attributable to the transactions of the Plan. They do not purport to, and do not, present fairly the financial position of the Commonwealth of Virginia as of June 30, 2018, and the changes in their financial position and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to this matter.

Alternative Investments As discussed in Notes 1 and 5 to the financial statements of the Plan, total system investments include investments valued at $896.6 million (30.1% of total assets) for the Enterprise Fund and $104.9 million (2.3% of total assets) for the Private Purpose Trust Fund, respectively, as of June 30, 2018, whose fair values have been estimated by management in the absence of readily determinable values. Management’s estimates are based on information provided by the fund managers or the general partners. Our opinions are not modified with respect to that matter.

Change in Accounting Principle As discussed in Notes 1 and 2 to the financial statements, the Plan has adopted the provisions of the Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Other Postemployment Benefits Other Than Pensions (OPEB), which has resulted in a restatement of the net position as of July 1, 2017. Our opinions are not modified with respect to this matter.

Other Matters

Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis on pages 7-20, the Schedule of Plan’s Proportionate Share of the Net Pension Liability, Schedule of the Plan’s Contributions, Schedule of Plan’s Share of Net OPEB Liability Group Life Insurance Program (GLIP), Schedule of Plan’s Contributions GLIP, Schedule of Plan’s Share of Net OPEB Liability Health Insurance Credit Program (HICP), Schedule of Plan’s Contributions HICP, Schedule of Plan’s Share of Net OPEB Liability Virginia Sickness and Disability Program (VSDP), Schedule of Plan’s Contributions VSDP Schedule of Plan’s Share of Total OPEB Liability – Pre-Medicare Retirees, and respective notes to the required supplementary information on pages 69-75, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context.

We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Plan’s basic financial statements. The accompanying supplementary information including, Appendix A, Appendix B, Appendix C, Appendix D (supplementary information), the letter of transmittal and other information are presented for purposes of additional analysis and are not a required part of the financial statements.

The supplementary information is the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the financial statements taken as a whole.

The letter of transmittal, other information and board members have not been subjected to the auditing procedures applied in the audit of the basic financial statements and accordingly, we do not express an opinion or provide any assurance on them.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated November 5, 2018 on our consideration of Virginia College Savings’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Virginia College Savings’ internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Virginia College Savings’ internal control over financial reporting and compliance.

Boise, Idaho November 5, 2018

Management’s Discussion& Analysis

Management’s Discussion and Analysis

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VIRGINIA COLLEGE SAVINGS PLAN’S MANAGEMENT’S DISCUSSION AND ANALYSIS

Unaudited

The Virginia College Savings Plan’s (VA529) Management’s Discussion and Analysis is designed to assist the reader in focusing on significant financial issues and provides an overview of financial activity. This discussion includes an analysis of VA529’s financial condition and results of operations for the fiscal year ended June 30, 2018. This presentation includes summarized data and should be read in conjunction with the accompanying financial statements and notes.

VA529 operates the Commonwealth’s Internal Revenue Code (IRC) Section 529 qualified tuition plan, which offers three programs, Prepaid529SM (Prepaid529), Invest529SM (Invest529), and CollegeAmerica®. Prepaid529 is considered a defined benefit program which offers contracts, at actuarially determined prices, that provide the future payment of undergraduate tuition for the normal full-time course load for students enrolled in a general course of study at any Virginia public higher educational institution and all mandatory fees required as a condition of enrollment of all students, and differing payouts at private or out-of-state institutions. Annually, VA529’s actuary determines the actuarial soundness of Prepaid529. Key factors used in the actuarial analysis include anticipated tuition increases (both short and long-term) as well as anticipated long-term investment performance. Invest529 is a defined contribution savings program, which allows participants to make contributions into their selected investment portfolio(s). Invest529 accounts are subject to market investment risks, including the possible loss of principal.

CollegeAmerica is also a defined contribution savings program. CollegeAmerica, a broker-sold program, offers 43 different American Funds mutual fund products as investment options. CollegeAmerica participants bear all market risk for their investment, including the potential loss of principal. The American Funds acts as program manager for CollegeAmerica and provides all back office and operational services for the program.

VA529 also operates the Commonwealth’s IRC Section 529A program. The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act authorized states to offer tax-advantaged savings programs for individuals with disabilities. ABLEnow® and ABLEAmerica®, both defined contribution plans, are VA529’s tax-advantaged savings programs for people with disabilities. The American Funds acts as program manager for ABLEAmerica, which opened to participants in July 2018.

Overview of Financial Statements

This discussion and analysis is an introduction to VA529’s basic financial statements, which include VA529’s business-type activity or enterprise fund, the fiduciary or private purpose trust fund, and notes to the financial statements.

Business Type Activities – Enterprise Fund

All Prepaid529 activities and VA529’s operating activities are accounted for in an enterprise fund (a statutorily-created special nonreverting fund), which is typically used to account for governmental operations that are financed and operated in a manner similar to a private sector business. Enterprise funds typically report activities that charge fees for supplies or services to the general public. This activity is reported on the full accrual basis of accounting. This means that all revenue and expenses are reflected in the financial statements even if the related cash has not been received or paid as of fiscal year-end (June 30th).

The Statement of Net Position presents information on all Prepaid529 assets and deferred outflows of resources as well as liabilities and deferred inflows of resources, with the difference between the two reported as total net position. Over time, increases and decreases in net position along with the information contained in the annual actuarial soundness report indicate Prepaid529’s financial position.

The Statement of Revenues, Expenses, and Changes in Net Position presents the revenues earned and expenses incurred during the year, including both actual as well as actuarially determined contract payments from participants and distributions for higher education expenses.


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The Statement of Cash Flows presents information related to cash inflows and outflows summarized by operating, financing, and investing activities.

Fiduciary Fund

Invest529 is reported as a private purpose trust fund. A private purpose trust fund accounts for transactions of trust arrangements in which the principal and income benefit individuals, private organizations or other governments, and uses the full accrual basis of accounting.

Invest529 activities are reported in the Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position. The Statement of Fiduciary Net Position presents information on all Invest529 assets and liabilities, with the difference between the two reported as net position held in trust for program participants. The Statement of Changes in Fiduciary Net Position presents the revenues earned and expenses incurred during the year.

Notes to the Financial Statements

The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the financial statements.

Other Information

CollegeAmerica and ABLEnow are defined contribution savings programs and are presented as Other Information. CollegeWealth, which closed to new participants in fiscal 2017, is also presented as Other Information.

Fiscal 2018 Financial Highlights

In aggregate, market movements had an overall net positive effect on fixed income and equity security prices in the Prepaid529, Invest529 and CollegeAmerica portfolios for the fiscal year ended June 30, 2018. Transaction activity also increased as customers continued to fund their college savings accounts and use them to pay higher education expenses.

The two graphs below represent Invest529 and Prepaid529 distributions since fiscal year 2000.

$0$25$50$75

$100$125$150$175$200$225$250$275$300

Amounts Distributed per Fiscal Year

Prepaid529

Invest529

Dollars in Millions


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The two graphs below represent Prepaid529 contract payments and Invest529 contributions received since fiscal year 1997 – Invest529 being introduced in fiscal 2000.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Number of Distributions on Behalf of Beneficiaries per Fiscal Year

Prepaid529

Invest529

$0

$100

$200

$300

$400

$500

$600

$700

Amounts Received per Fiscal Year

Prepaid529

Invest529

Dollars in Millions

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,0001,800,000

Number of Payments/Contributions Received per Fiscal Year

Prepaid529

Invest529


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The graph below represents Invest529 and Prepaid529 accounts under management at fiscal year-end since fiscal year 1997 – Invest529 being introduced in fiscal 2000.

Table 1 demonstrates the numbers of students served, and the amounts paid from Prepaid529 directly to Virginia public universities and community colleges, and the amounts paid from Invest529 to account owners, beneficiaries, or to the respective university or community college attended during fiscal year 2018.

Table 1 Prepaid529 and Invest529 Payments to Virginia Public Universities and Community Colleges Fiscal Year 2018

Public Universities

Number of Students with

ContractsPayments to Universities

Number of Students w ith

Accounts

Payments Associated w ith

Universities

University of Virginia 1,609 $23,728,008 1,982 $22,799,528

Virginia Tech 1,881 23,459,832 2,343 24,051,012

Virginia Commonw ealth University 1,274 13,733,527 1,176 10,011,007

College of William & Mary 609 11,829,337 735 9,371,773

James Madison University 1,053 10,590,868 1,593 15,874,887

George Mason University 878 9,026,322 1,131 9,735,208

Christopher New port University 445 5,756,798 463 4,999,175

Radford University 330 3,005,655 334 2,599,234

Old Dominion University 411 2,998,825 464 3,566,793

Longw ood University 290 2,949,820 254 2,193,819

University of Mary Washington 262 2,866,835 379 3,790,336

Virginia Military Institute 64 985,345 70 701,489

University of Virginia's College at Wise 23 182,160 18 109,161

Virginia State University 15 106,972 23 91,741

Norfolk State University 5 36,808 21 88,646

Total Universities 9,149 $111,257,111 10,986 $109,983,808

Prepaid529 Invest529

0

50,000

100,000

150,000

200,000

250,000

300,000

Growth in Accounts Under Management

Prepaid529

Invest529


11

Community Colleges

Number of Students w ith

Contracts

Payments to Community

Colleges

Number of Students with

Accounts

Payments Associated with

Community Colleges

Northern Virginia Community College 471 $1,502,372 834 $2,708,100

Tidew ater Community College 135 406,618 137 511,346

J Sargeant Reynolds Community College 146 332,255 134 482,668

John Tyler Community College 121 281,093 118 333,816

Germanna Community College 94 276,129 88 277,424

Virginia Western Community College 55 177,660 49 130,281

Thomas Nelson Community College 53 135,962 63 184,941

Lord Fairfax Community College 50 135,177 64 257,390

New River Community College 33 95,455 24 69,475

Richard Bland College 15 94,641 18 79,034

Piedmont Virginia Community College 42 91,729 74 211,733

Blue Ridge Community College 24 62,757 30 93,694

Central Virginia Community College 18 45,178 27 92,554

Rappahannock Community College 12 39,117 21 44,555

Southside Virginia Community College 12 20,569 6 5,742

Wytheville Community College 6 20,449 4 9,604

Danville Community College 7 14,967 6 35,542

Paul D Camp Community College 6 13,570 3 4,063

Patrick Henry Community College 6 12,851 5 29,425

Virginia Highlands Community College 6 12,401 2 2,267

Dabney S Lancaster Community College 3 6,304 4 19,807

Southw est Virginia Community College 3 5,763 4 3,762

Mountain Empire Community College 2 4,751 3 2,116

Eastern Shore Community College 1 1,406 - -

Total Community Colleges* 1,321 $3,789,172 1,718 $5,589,336

Prepaid529 Invest529

*Includes Richard Bland College; Virginia’s only 2-year junior college

Chart 1 below reflects the types of institutions to which benefits are paid. Most Prepaid529 payments are made to in-state public institutions on behalf of the beneficiary pursuant to the contracts. Prepaid529 benefits paid for those students attending an out-of-state school are distributed by transferring benefits to an Invest529 account. Thus, Chart 1 reflects Prepaid529 benefits paid on behalf of beneficiaries who attend out-of-state institutions as transfers to Invest529. The majority of Invest529 payments are made directly to, or to reimburse account owners or beneficiaries for expenses paid to institutions, including out-of-state institutions. Other payments include rollovers to another state’s plan, rollovers/transfers to another VA529 program, and refunds to the account owner.


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Chart 1 2018 Program Payouts by Institution Type (in millions)

Analysis of Enterprise Fund Financial Activities

The Enterprise Fund includes the activities of Prepaid529 as well as VA529’s general operating activities. The Enterprise Fund ended the year with net position of $784.6 million.

Table 2 is a summary comparison of the Enterprise Fund’s Statement of Revenues, Expenses, and Changes in Net Position for fiscal year 2018 as compared to the prior year.

Table 2 – Enterprise Fund – Changes in Net Position (in millions)*

YEARS ENDED JUNE 30, 2018 2017 CHANGE

Operating revenues Charges for sales and services 45.7$ 41.0$ 4.7$ Interest and dividends 147.0 129.4 17.6 Net increase (decrease) in fair value of inv. (11.8) 126.2 (138.0) Prepaid529 contract payments 114.4 107.4 7.0

Net operating revenues 295.4 404.1 (108.6) Operating expense Tuition benefits expense 266.0 180.8 85.2

Other operating expenses 25.3 25.3 (0.0) Net operating expenses 291.3 206.1 85.2 Operating income (loss) 4.1 198.0 (193.8) Non operating revenue (expense) net (2.7) 0.0 (2.7) Income (loss) before transfers 1.4 198.0 (196.6) Transfer to the Commonwealth (0.6) (0.9) 0.3 Change in net position 0.8 197.1 (196.3) Net position beginning - restated 783.8 589.7 194.1 Net position ending 784.6$ 786.8$ (2.2)$

*Amounts may not sum due to rounding *The 2017 amounts have not been restated to reflect the implementation of GASB 75.

$0.0 0%

$115.0 64%

$8.8 5%

$-0%

$55.0 31%

Prepaid529 Payouts$22.8 7%

$115.7 35%

$13.5 4%

$143.5 44%

$33.6 10%

Invest529 Payouts

Institution unknown

In-state - Public

In-state Private

Out-of-state

Other


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The Prepaid529 portfolio’s asset allocation benefitted from the strong performance of U.S. and international equities, as well as certain fixed income classes as reflected in the rate of return for fiscal 2018 of 5.18 percent. For the fiscal year ended June 30, 2018, a net decrease is reflected in the fair value of investments of approximately $11.8 million, versus the increase in the prior fiscal year of $126.2 million. While investment income remained consistent and realized gains increased by $275 million, the net reversal of the prior year’s increase in market value of investments (mark-to-market adjustment) results in a net decrease in the value of investments. The fair market value of investment securities changes on a daily basis depending upon market conditions. This number will fluctuate from year to year, depending upon market conditions on June 30th, or the last business day of the fiscal year. Investment income represents about 46 percent of enterprise fund revenue, as shown in Chart 2.

Prepaid529 contract payment revenue includes actual and actuarially estimated contract payments, and represents approximately 39 percent of enterprise fund revenue. Actual contract payments received from participants increased by $3.2 million over prior year receipts. In addition, actuarially determined Prepaid529 contract payment revenue decreased by $3.8 million. Receipts for charges for sales and services increased during fiscal year 2018 by $4.7 million. This increase is attributable to growth in assets in the CollegeAmerica program.

Table 2 also reflects tuition benefits expense, which is comprised of two components; actuarially determined and actual tuition benefits expenses. The net change in tuition benefits expense from fiscal year 2017 is $85.2 million. The actuarially determined tuition benefit expense is accrued for estimated expenses, as determined by VA529’s actuary, and represents the net change in tuition benefits payable over the prior fiscal year end. This actuarially determined amount increased from the previous fiscal year end accrual by 74.5 million.

Actual tuition benefits expense represents actual distributions made during the fiscal year. This amount increased over the prior year by $10.7 million, or 6.4 percent. The increase in actual distributions is primarily attributable to increases in tuition and mandatory fees at the higher education institutions.

As shown in Chart 3, tuition benefit payments represent 88 percent of actual expenses of the Enterprise Fund. Of the $25.3 million expended for administration and operations expenses, 83 percent were for personal and contractual services.

$135.2 46%

$114.8 39%

$45.7 15%

Chart 22018 Enterprise Fund Revenue

Investment and other income

Prepaid529 contract payments

Charges for sales and services

in millions


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Table 3 provides a comparison of administration and operations expenses between fiscal years 2018 and 2017.

Table 3 – Enterprise Fund Plan Administration and Operations Expenses (in thousands)

YEARS ENDED JUNE 30, 2018 2017 CHANGE

Personal services 10,851$ 10,240$ 611$

Actuarial pension expense 1,167 1,339 (172)

Fiscal and contractual services 10,086 11,289 (1,203)

Supplies and materials 51 70 (20)

Depreciation 511 507 4

Rent, insurance, and other related charges 255 223 33

Expendable equipment 255 502 (247)

SOAR Virginia 2,000 1,000 1,000

Other 84 115 (31)

Administration and Operations Expenses 25,260$ 25,285$ (25)$

Personal services expense increased by $611,000, or 6.0 percent, over the prior year’s amount. The increase is attributable to hiring additional staff, and salary and incentive increases as provided in the VA529’s Compensation Plan approved by the General Assembly. Expenses for fiscal and contractual services represent about 40 percent of fiscal 2018 administrative expenses. This expense category experienced a decrease of $1.2 million, or -10.7 percent, over the prior year due to a decrease in marketing expenses in fiscal 2018. The SOAR Virginia early commitment scholarship program was also funded with $2 million during fiscal 2018.

$179.0 88%

$10.9 5%

$10.1 5%

$4.3 2%$25.3

12%

Chart 32018 Enterprise Fund Expenses

in millions *

Tuition Benefits Expense **

Personal services

Fiscal and ContractualservicesOther operating

** Does not include actuarial tuition benefits

* Amounts may not sum due to rounding


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Table 4 – Enterprise Fund Summary of Net Position (in millions)*

As of JUNE 30, 2018 2017 CHANGE

Assets and deferred outflows:

Current assets 152.6$ 141.2$ 11.5$

Investments 2,671.8 2,576.2 95.6

Capital assets 0.8 8.3 (7.5)

Other noncurrent assets 147.0 146.8 0.2

Total assets 2,972.1 2,872.4 99.7

Total deferred outflows 2.0 2.5 (0.5)

Assets and deferred outflows 2,974.1 2,874.9 99.3

Liabilities and deferred inflows:

Current liabilities 320.6 286.1 34.5

Noncurrent liabilities 1,867.6 1,801.7 65.9

Total liabilities 2,188.2 2,087.8 100.4

Total deferred inflows 1.3 0.3 1.0

Liablities and deferred inflows 2,189.5 2,088.1 101.4

Net Position

Net investment in capital assets 0.8 3.3 (2.5)

Unrestricted 783.9 783.5 0.4

Total net position 784.6$ 786.8$ (2.2)$

*Amounts may not sum due to rounding

Assets

Long-term investments increased by 3.7 percent, attributable to strong market conditions. Capital assets decreased by $7.5 million due to the expiration of the Plan’s capital lease for the headquarters office building on June 30, 2018. The lease was renewed and modified in the enterprise fund in 2018 and a loss was recorded in the enterprise fund. Other noncurrent assets represents the noncurrent portion of tuition contributions receivables remained steady for fiscal 2018. This represents the decrease in the actuarially determined amount expected to be collected from contract holders of record in future years.

Liabilities

Current liabilities increased by $34.5 million. This increase is due to the change in pending trades payable as well as the change in the actuarial present value of the future tuition obligations. Changes in the present value of the future tuition benefit obligation can be attributed to the passage of time, unit redemptions and new unit sales, differences between actual experience and the actuarial assumptions used, and changes to the actuarial assumptions.

Actuarial Soundness

VA529’s statute requires that it annually determine the actuarial soundness of Prepaid529. The purpose of the actuarial valuation is to assess the future value of VA529’s assets and liabilities, which are discounted to reflect their present value.

During fiscal year 2018, Prepaid529’s actuarial reserve position, as calculated by VA529’s actuary and reported in the 2018 Actuarial Valuation Report, declined from an actuarial surplus of $786.8 million to a surplus of $784.6 million. Lower than expected investment returns and higher than expected tuition increases during fiscal 2018 offset earnings on the actuarial reserve and other actuarial gains. Actuarial assumptions are discussed in Note 10 in the Notes to the Financial Statements.


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The overall effect of the changes on the actuarial reserve is summarized in Table 5. Table 5 reflects the actuarial gains and losses and the Actuarial Reserve as of June 30, 2018 as calculated by VA529’s actuary using preliminary financial statements developed and provided by VA529 as reflected in the draft Actuarial Valuation Report as of October 31, 2018. The final report is expected to be completed no later than mid-December 2018. Any adjustments to the final Actuarial Reserve and the estimated valuation will be reflected and disclosed in subsequent year’s financial statements. A copy of the 2018 Actuarial Valuation Report may be obtained from VA529.

Table 5 – Prepaid529 Statement of Changes in Actuarial Reserve (dollars in millions)

Actuarial Reserve / (Deficit) as of June 30, 2017 786.8$ Restatement of beginning net position (GASB 75 - OPEB) (2.9) Interest on the reserve at 6.25% 49.0 Investment gain / (loss) (30.3) Tuition gain / (loss) (8.7) Lower than expected actual account balances 2.4 Sales of new contracts 9.3 Administrative fee revenue from Virginia529 26.8 Change to reasonable rate and volatility assumptions (1.2) Change to investment return assumption (48.2) Change to community college tuition growth assumption 0.9 Other experience gains 0.7

Actuarial Reserve / (Deficit) as of June 30, 2018 784.6$

Prepaid529’s overall funded status, as calculated by the actuary, as of June 30, 2018 was 136.7 percent. Chart 4 provides Prepaid529’s funded status since 1997.

100%108%

118%122%

109%

93%

80%89%

96%98%107%

97%

85%90%

101%103%

110%

124% 126%129%

138%137%

0%

20%

40%

60%

80%

100%

120%

140%

160%

Chart 4Prepaid529 Actuarially Funded Percentage as of June 30th


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Table 6 represents the condensed Statement of Cash Flows for the Enterprise Fund for the fiscal years ended June 30, 2018 and 2017. VA529’s year-end cash balance in the Enterprise Fund decreased by $8.5 million.

Table 6 – Enterprise Fund Statement of Cash Flows (in millions)

As of June 30, 2018 2017Cash provided (used) by: Operating activities ($50.6) ($35.6) Noncapital financing activity (0.6) (0.9) Capital and related financing activities (0.7) (0.7) Investing activities 43.5 37.8 Net increase (decrease) in cash (8.5) 0.6Cash – beginning of year 77.8 77.2Cash – end of year $69.3 $77.8

In fiscal 2018, the Board revised its Investment Policies and Guidelines for Prepaid529 and Invest529. Changes were primarily related to benchmark changes and the addition of criteria for the selection of private equity managers within the Prepaid529 Guidelines. The Prepaid529 benchmarks were revised during the year such that composite benchmarks are now constructed using a bottom up approach with benchmarks reflecting the underlying manager’s style and philosophy versus the previous top down approach in which asset class benchmarks were utilized based on portfolio modeling. The new benchmarks were instituted for the quarter ended March 2018. During the fiscal year the Board also reviewed and approved Investment Policies and Guidelines for the ABLEnow program.

In fiscal 2018, the Investment Advisory Committee selected Horsley Bridge Partners as an additional private equity manager for Prepaid529, committing $20 million to the Growth Buyout Fund XII. The remainder of the annual commitment to private equity was placed with an existing manager, Adams Street Partners, through a $20 million commitment to their Venture Innovation Fund II. Additionally the Committee hired Golub Capital as a private debt manager for Prepaid529, committing $35 million to the Golub Capital Partners XI fund. A complete list of Prepaid529 managers as of June 30, 2018 can be found in Appendices A and B.

Chart 5

Prepaid529 Asset Allocation as of June 30, 2018

32.5%

52.5%

15.0%

Target Asset Allocation

32.0%

52.6%

15.4%

Actual Asset Allocation

Equities

Fixed Income

AlternativeInvestments


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Analysis of Fiduciary Fund (Invest529) Financial Activities

Table 7 presents a summary of Invest529’s assets and liabilities for fiscal 2018 and 2017. Cash increased by $47.3 million from fiscal year 2017. VA529 engages various investment managers to invest the funds of the Invest529 program. The cash position fluctuates as these managers purchase and sell investments. Strong market conditions and continued increases in participant contributions during the fiscal year resulted in a 13.7 percent increase in investments.

Table 7 – Invest529 Statement of Fiduciary Net Position (in millions)

Fiscal year ended June 30 2018 2017 ChangeAssets:Cash 134.3$ 87.0$ 47.3$ Receivables 5.6 2.7 2.9 Investments 4,391.5 3,861.3 530.2

Total Assets 4,531.3 3,951.0 580.3 Liabilities 9.4 6.2 3.2 Net position held in trust, ending 4,522.0$ 3,944.8$ 577.2$


Table 8 reflects the change in Invest529’s net position for fiscal 2018. Additions to the fiduciary net position held in trust include contributions from participants as well as net investment income. Contributions represent amounts received from new and existing account holders. Contributions from Invest529 participants increased from the previous year by approximately $115 million and there were more than 50,000 new Invest529 accounts opened during the fiscal year. Educational expense benefit payments made on behalf of participants represent 90 percent of Invest529 deductions. As anticipated, overall disbursements to Invest529 account owners, beneficiaries and institutions increased over the prior year by approximately 24.3 percent as more participants withdrew funds for higher education expenses.

Table 8 – Invest529 Change in Fiduciary Net Position (in millions)

Fiscal year ended June 30 2018 2017 ChangeAdditions 906.4$ 879.7$ 26.6$ Deductions 329.1 264.2 64.9

Net Increase (decrease) 577.2 615.5 (38.3) Net position held in trust, beginning 3,944.8 3,329.3 615.5 Net position held in trust, ending 4,522.0$ 3,944.8$ 577.2$


In October 2017, Invest529 received a Gold rating from Morningstar. Morningstar is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar introduced its ratings on 529 plans in 2010 and evaluates college savings plans on five key pillars – Process, Performance, People, Parent, and Price – which its analysts believe lead to plans that are more likely to outperform over the long term on a risk-adjusted basis. Morningstar evaluated 62 of the largest 529 plans in 2017. Morningstar’s ratings from highest to lowest are Gold, Silver, Bronze, Neutral and Negative. Invest529 was one of four plans to receive a Gold rating.


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In fiscal 2018, the Invest529 age-based portfolios evolved in accordance with the rebalancing policy along their scheduled glide paths, which emphasizes more income and preservation of capital as the portfolios proceed towards their final evolution. This evolution represented one of the major steps in the glide path where the portfolios hit their respective triennial target allocations as set forth in the Invest529 Program Description. The next major step evolution will occur on January 1, 2021.

CollegeAmerica, CollegeWealth, and ABLEnow

Assets under management in CollegeAmerica increased during the fiscal year by approximately 10.9 percent from $57.9 billion to $64.2 billion. There were an additional 69,637 unique CollegeAmerica accounts at fiscal year-end compared to the prior fiscal year-end.

Assets under management in CollegeWealth decreased by 39 percent in fiscal year 2018 to approximately $47.9 million at year end. The program was closed to new participants during fiscal year 2017 in conjunction with the opening of the Invest529 FDIC-Insured Portfolio. Remaining CollegeWealth assets represent those assets held in savings instruments at BB&T.

ABLEnow, VA529’s direct-sold ABLE disability savings program, launched in fiscal year 2017 and saw continued growth in fiscal year 2018. As of June 30, 2018, there were 3,299 active accounts. Assets under management increased by more than $7 million, ending the fiscal year at approximately $10.0 million.

CollegeAmerica, CollegeWealth and ABLEnow are presented as Other Information to VA529. Additional information on these programs can be found in this section of the report.

Economic Factors and Outlook

VA529 continues to remain optimistic that its asset allocation and investment strategies will result in the Prepaid529 portfolio meeting or exceeding performance expectations over the long term. VA529 has assumed a long-term rate of return of 5.75 percent on the Prepaid529 investments having reduced it from 6.25 percent in August 2018. As of June 30, 2018, the total return since inception was about 6.24 percent net of fees and reflected Prepaid529’s 5.18 percent investment performance during fiscal 2018. Domestic equity and certain fixed income markets continue to perform well into fiscal 2019 having a positive impact on Prepaid529 portfolio performance. Portfolio performance through the balance of fiscal 2019 will depend on many factors.

In assessing Prepaid529’s financial condition and in pricing Prepaid529 contracts, VA529 has projected that tuition and fee increases at Virginia’s public higher education institutions will increase annually by approximately 6.5 percent for the 2019-2020 academic year and thereafter for four-year universities, and 6.0 percent for the 2019-2020 academic year and thereafter for community colleges and two-year institutions. These long-term tuition and fee increase projections were established for the June 30, 2018 Prepaid529 valuation and 2018-2019 enrollment period pricing.

Changes in public education funding that result in tuition increases above VA529’s projections would have an immediate, detrimental impact on VA529’s outstanding long-term Prepaid529 obligations. With the statutory requirement that institutions provide updated, long-term tuition projections, VA529 remains in a position to be informed of future tuition and fee increases. However, changes in tuition and fee models at Virginia public higher education institutions that impact Prepaid529 and unanticipated changes in program revenue or statutorily mandated changes in contract pricing may have a negative impact on program sustainability.

In light of these and other issues, in fiscal 2016 VA529 undertook a sustainability study to consider all options for Prepaid529 including maintaining the current program unchanged; maintaining the current program with minimal modifications (single-price model; single-tier pricing); closing Prepaid529 to new enrollment and managing existing contracts through depletion; considering a new structure, such as a weighted average payout program for new contracts; and/or considering a program with some risk sharing among VA529 and Virginia public higher education institutions. The sustainability study was completed and presented to the Board for consideration in October 2016. As a result, VA529’s Board approved moving


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to a single-tier pricing model for the 2016-2017 enrollment period, and directed staff to review the design and implementation of an enrollment-weighted average tuition payout program to supplant the current Prepaid529 program. That study continued during fiscal 2017 and was presented to the Board for consideration in October 2017. The Board approved proceeding with legislation to revise Prepaid529’s benefits to an enrollment-weighted average tuition payout structure. Legislation was proposed during the 2018 General Assembly Session and was not adopted but continued to the 2019 Session until it could be studied by the Joint Legislative Audit & Review Commission. The Commission is expected to complete their study in November 2018, prior to the 2019 Session. The performance of participants’ Invest529 and CollegeAmerica portfolios will depend on many of the same investment factors as those impacting Prepaid529. In Invest529, CollegeAmerica, CollegeWealth, and ABLEnow, the participants, rather than VA529, bear the risk of portfolio declines as a result of the market or other factors. As a result, no further information as to economic factors and outlook is provided for these programs.

Financial Statements

VIRGINIA529STATEMENT OF NET POSITION ENTERPRISE FUND

For the Year Ended June 30, 2018

Administration and Operations Prepaid529 Total Enterprise

Assets and Deferred Outflows of ResourcesCurrent assets:

Cash and cash equivalents (Note 1E and 3) 2,733,845$ 66,958,456$ 69,692,301$ Interest receivable - 7,053,081 7,053,081 Prepaid529 contract payments receivable (Note 1G and 10) - 47,654,608 47,654,608 Pending trade receivables - 14,975,314 14,975,314 Prepaid and other assets 1,321,798 - 1,321,798 Accounts receivable (Note 1H) 10,582,925 1,328,154 11,911,080

Total current assets 14,638,569 137,969,614 152,608,182 Noncurrent assets:

Investments (Note 1E, 3, 4 and 5) - 2,671,795,238 2,671,795,238 Other post employment benefits, net (Note 12 and 13) 393,000 - 393,000 Prepaid529 contract payments receivable (Note 1G and 10) - 146,567,818 146,567,818 Depreciable capital assets, net (Note 1K and 9) 763,014 - 763,014

Total noncurrent assets 1,156,014 2,818,363,056 2,819,519,070 Total assets 15,794,583 2,956,332,670 2,972,127,253

Deferred Outflows of Resources:Pension contributions made after measurement date (Note 11) 1,005,074 - 1,005,074 Pension Related (Note 11) 607,000 - 607,000 Other post employment benefits related (Note 12 and 13) 337,920 - 337,920

Total deferred outflows 1,949,994 - 1,949,994 Total Assets and Deferred Outflows of Resources 17,744,576 2,956,332,670 2,974,077,247

Liabilities and Deferred Inflows of ResourcesCurrent liabilities:

Accounts payable 895,655 10,533 906,188 Pending trades payable - 35,076,773 35,076,773 Program distributions payable - 13,977 13,977 Due to program participants (Note 1L) - 2,142,510 2,142,510 Obligations under securities lending (Note 6) 367,970 - 367,970 Tuition benefits payable (Note 8 and 10) - 281,415,169 281,415,169 Compensated absences (Note 1M and 8) 677,111 - 677,111 Obligations under capital lease (Note 8) - - -

Total current liabilities 1,940,736 318,658,962 320,599,698 Noncurrent liabilities:

Tuition benefits payable (Note 8 and 10) - 1,853,807,257 1,853,807,257 Compensated absences (Note 1M and 8) 94,699 - 94,699 Obligations under capital lease (Note 8) - - - Net pension liability (Note 11) 10,526,000 - 10,526,000 Net other post employment benefits liability (Note 12 and 13) 3,128,217 - 3,128,217

Total noncurrent liabilities 13,748,916 1,853,807,257 1,867,556,173 Total liabilities 15,689,652 2,172,466,219 2,188,155,871 Deferred inflows of resources:

Pension Related (Note 11) 767,000 - 767,000 Other post employment benefits related (Note 12 and 13) 524,910 - 524,910

Total deferred inflows 1,291,910 - 1,291,910 Total Liabilities and Deferred Inflows of Resources 16,981,562 2,172,466,219 2,189,447,781 NET POSITION

Net investment in capital assets 763,014 - 763,014 Unrestricted - 783,866,452 783,866,452

Total net position 763,014$ 783,866,452$ 784,629,466$

The notes to financial statements are an integral part of this statement.

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VIRGINIA529

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

ENTERPRISE FUND

For the Year Ended June 30, 2018 Administration and

Operations Prepaid529 Total

Enterprise

Operating revenues:

Charges for sales and services (Note 1D) 45,732,873$ -$ 45,732,873$

Interest, dividends, rents, and other investment income (net) 54,529 146,975,743 147,030,273

Net increase (decrease) in fair value of investments - (11,781,759) (11,781,759)

Prepaid529 contract payments (Note 1G) - 114,786,120 114,786,120

Actuarial Prepaid529 contract payments (Note 10) - (345,609) (345,609)

Other 21,016 6,456 27,472

Total operating revenues 45,808,418 249,640,951 295,449,369

Operating expenses:

Personal services (Note 11 and Note 12) 10,851,237 - 10,851,237

Actuarial pension expense (Note 11) 1,167,000 - 1,167,000

Fiscal and Contractual services 10,086,327 22,407 10,108,733

Supplies and materials 50,601 - 50,601

Depreciation (Note 9) 511,062 - 511,062

Rent, insurance, and other related charges 255,482 - 255,482

Tuition benefits expense - 178,970,716 178,970,716

Actuarial tuition benefits expense (Note 10) - 87,054,391 87,054,391

Expendable equipment 255,266 - 255,266

SOAR Virginia (Note 14) 2,000,000 - 2,000,000

Other 83,686 - 83,686

Total operating expenses 25,260,661 266,047,514 291,308,175

Operating income/loss 20,547,757 (16,406,563) 4,141,194

Nonoperating Revenues (Expenses)

Interest expense (270,584) - (270,584)

Loss on capital asset (2,441,547) - (2,441,547)

Operating income/loss before transfers 17,835,625 (16,406,563) 1,429,063

Transfers:

Transfers to the General Fund of the Commonwealth (645,854) - (645,854)

Interfund transfer in (out) (Note 1) (16,760,228) 16,760,228 -

Change in net position 429,544 353,665 783,209

Net position - July 1, 2017, as restated (Note 2) 333,471 783,512,787 783,846,257

Net position - June 30, 2018 763,014$ 783,866,452$ 784,629,466$


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VIRGINIA529STATEMENT OF CASH FLOWS ENTERPRISE FUND

Cash flows from operating activities:Receipts for sales and services 42,035,181$ Contributions received 114,706,678Other operating revenue 27,472Payments to suppliers for goods & services (1,540,933)Payments to employees (11,797,136)Payments for contractual services (12,159,833)Distributions (179,803,506)Other operating expenses (2,084,484)

Net cash provided by (used for) operating activities (50,616,561)$

Cash flows from noncapital financing activities: Transfer to the General Fund of the Commonwealth (645,854)

Net cash provided by (used for) noncapital financing activities (645,854)$

Cash flows from capital and related financing activities: Acquisition of capital assets (114,489)$ Payment of principal and interest on capital leases (588,884)

Net cash provided by (used for) capital and related financing activities (703,373)$

Cash flows from investing activities: Purchase of investments (801,159,813)$ Proceeds from sales or maturities of investments 777,217,778 Interest income on cash, cash equivalents, and investments 67,442,213

Net cash provided by (used for) investing activities 43,500,178$

Net change in cash and cash equivalents (8,465,609)

Cash and cash equivalents - July 1, 2017 77,789,941

Cash and cash equivalents - June 30, 2018 69,324,332$

Reconciliation of cash and cash equivalents: Per the Statement of Net Position: Cash and cash equivalents 69,692,301$ Less:

Securities lending cash equivalents (367,970)

Cash and cash equivalents per the Statement of Cash Flows 69,324,331$


For the Fiscal Year Ended June 30, 2018

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VIRGINIA529STATEMENT OF CASH FLOWS (continued)ENTERPRISE FUND

Reconciliation of operating income to net cash providedby operating activities:

Operating income 4,141,194$

Adjustments to reconcile operating income to net cash providedby (used for) operating activities:Depreciation 511,062 Interest, dividends, rents and other investment income (147,030,273) Net decrease in fair value of investments 11,781,759

Changes in assets, liabilities, and deferred inflows and outflows:(Increase) decrease in receivables (3,777,133) (Increase) decrease in tuition contributions receivable 345,609 (Increase) decrease in assets (922,071) (Increase) decrease in OPEB asset (32,000) Increase (decrease) in deferred outflows 537,751 Increase (decrease) in accounts payable (1,754,546) Increase (decrease) in amounts due to program participants (832,790) Increase (decrease) in current tuition benefits payable 18,351,041 Increase (decrease) in current compensated absences 116,267 Increase (decrease) current obligations under capital lease (320,314) Increase (decrease) in noncurrent tuition benefits payable 68,703,350 Increase (decrease) in noncurrent compensated absences (62,244) Increase (decrease) in net pension liability (1,167,000) Increase (decrease) in net OPEB liability (180,133) Increase (decrease) in deferred inflows 973,910

Net cash provided by (used for) operating activities (50,616,561)$

Noncash investing, capital, and financing activities: The following transaction occurred prior to the statement of net position date

Change in fair value of investments (11,781,759)$ Lease modification elements (Note 7):

Loss on modification 2,441,546 Adjustment of capital asset value on modification 7,145,887 Adjustment of capital lease liability on modification (4,704,340)


For the Fiscal Year Ended June 30, 2018

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VIRGINIA529STATEMENT OF FIDUCIARY NET POSITIONPRIVATE PURPOSE TRUST FUNDJune 30, 2018

Assets:Cash and cash equivalents (Note 1E and 2) 134,310,712$

Receivables:Interest and dividends 4,411,053 Accounts receivable 327,796 Pending trades receivable 831,805

Investments:Bonds 118,601,505 Mutual funds - Non-Index 647,484,271 Mutual funds - Index 2,450,121,123 Stable Value 989,143,186 Equities 81,227,665 Private real estate 104,874,622

Total investments 4,391,452,372

Total Assets 4,531,333,738

Liabilities:Accounts payable 329,221 Pending trades payable 1,602,711 Due to program participants (Note 1L) 5,992,436 Program distributions payable 1,443,387

Total liabilities 9,367,756

Net position held in trust for program participants 4,521,965,983$

Amounts may not sum due to rounding


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VIRGINIA529STATEMENT OF CHANGES IN FIDUCIARY NET POSITIONPRIVATE PURPOSE TRUST FUNDFor the Year Ended June 30, 2018

ADDITIONS

Contributions:From participants 666,707,707$

Total contributions 666,707,707

Investment income:Net increase (decrease) in fair value of investments (175,165,572) Interest, dividends, and other investment income 419,078,447 Total investment income 243,912,875 Less investment expense (4,265,734)

Net investment income 239,647,141

Total additions 906,354,848

DEDUCTIONSEducational expense benefits 295,548,630 Shares redeemed 32,265,785 Other expenses 1,321,301

Total deductions 329,135,716

Changes in net position 577,219,132

Net position held in trust for program participants:

July 1, 2017 3,944,746,851

June 30, 2018 4,521,965,983$


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1. Summary of Significant Accounting Policies

The Virginia College Savings Plan (VA529), a body politic and corporate and an independent agency of the Commonwealth of Virginia, was created in 1994 by the Virginia General Assembly, and its enabling legislation is codified at §23.1-700 through §23.1-713 of the Code of Virginia, as amended. VA529 operates the Commonwealth’s Internal Revenue Code (IRC) §529 qualified tuition plan, which offers three programs, Prepaid529, Invest529, and CollegeAmerica. VA529 also operates the Commonwealth’s IRC §529A disability savings plans through the ABLEnow and ABLEAmerica programs.

Prepaid529 is a defined benefit program, which offers contracts, at actuarially determined amounts, that provide for the future payment of undergraduate tuition for the normal full-time course load for students enrolled in a general course of study at any Virginia public higher educational institution and all mandatory fees required as a condition of enrollment of all students. The contract provisions also allow benefits to be used at in-state private or out-of-state institutions with payouts based on earnings and the amounts charged by Virginia’s public higher education institutions. Calculations and payouts differ between in-state private and out-of-state institutions. Prepaid529 typically has a limited enrollment period annually, and is open to children in the ninth grade or younger if the child or participant is a Virginia resident. Since inception, over 129,916 accounts have been opened, with 63,073 contracts remaining active at year-end. The program had total assets invested from contributions, net earnings and other revenue of approximately $2.7 billion as of June 30, 2018. The program invests contract payments to meet future obligations.

VA529’s operating costs are paid from program earnings and other revenue. VA529 does not receive any general fund appropriations. VA529’s enabling legislation provides that all moneys remaining in its enterprise fund (a statutorily-created special nonreverting fund) at the end of a biennium shall not revert to the Commonwealth’s general fund. Funds remaining may be used to pay VA529’s obligations, including those of Prepaid529. VA529 annually assigns net operating revenue to Prepaid529 to support its funded status. Accordingly, net operating revenue of $16,760,228 was allocated within the enterprise fund to Prepaid529 for fiscal 2018 via an interfund transfer. VA529’s assets and income are exempt from federal, state, and local income taxation, except for taxes on unrelated business income. VA529’s enabling legislation also provides that a sum sufficient appropriation be included by the Governor in his budget to cover current obligations of VA529, including Prepaid529’s contractual obligations, in the event of a funding shortfall.

Invest529 is a defined contribution savings program, which allows participants of all ages to save for qualified higher education expenses, including tuition and fees, at any qualified higher education institution or primary and secondary school by making contributions into the investment portfolio(s) of their choice. Participants are allowed to select from among 20 investment portfolios. Two additional portfolios remain open but are closed to new participants. Invest529 accounts are subject to investment risks, including the possible loss of principal. The Invest529 program is open year round and has no age or residency restrictions. Invest529 began operations in December 1999. As of June 30, 2018, 370,691 accounts had been opened, with 283,154 accounts remaining active at year end. These accounts had a net asset value of approximately $4.5 billion as of June 30, 2018. Invest529 investment management fees and administrative fees are paid on a pro-rata basis by each account owner and vary according to the portfolio selected. Invest529 accounts provide investors with the same federal and state tax benefits available to participants in the Prepaid529 program.

CollegeAmerica, a broker-sold IRC §529 college savings option, is a defined contribution college savings program and is administered by the American Funds pursuant to a contract using 43 American Funds mutual funds. CollegeWealth is also a defined contribution college savings program under which participants invest in FDIC-insured savings products offered through a participating bank. CollegeWealth was closed to new participants in 2017. ABLEnow, Virginia’s IRC §529A savings program, is a defined contribution disability savings program which allows individuals with disabilities to save for qualified disability expenses. ABLEnow is administered by PNC Bank, N.A. with low-cost, target-risk mutual funds as investment options. ABLEAmerica, a broker-sold ABLE plan, was launched in July 2018. These programs are presented as Other Information as the majority of associated investment and record keeping is maintained by the respective partners, not VA529.


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An eleven-member governing Board administers VA529, consisting of four ex-officio members and seven non-legislative citizens. Four members are appointed by the Governor, one is appointed by the Senate Committee on Rules, and two are appointed by the Speaker of the House of Delegates. The ex-officio members are the Director of the State Council on Higher Education for Virginia, the Chancellor of the Virginia Community College System, the State Treasurer, and the State Comptroller. The non-legislative citizen members shall have significant experience in finance, accounting, law, or investment management. In order to assist the Board in fulfilling its fiduciary duty with the investment of VA529 assets; and in fulfilling its responsibilities relating to VA529’s financial reporting processes and internal and financial controls; the Board has appointed an Investment Advisory Committee (IAC) and Audit and Actuarial Committee (A&AC), respectively. The IAC and A&AC are permanent advisory committees of the Board pursuant to §23.1-702 of the Code of Virginia, as amended. The Board has adopted charters that describe the purpose of the committees as well as their duties and responsibilities, composition and conduct of business.

A separate report is prepared for the Commonwealth of Virginia, which includes all agencies, boards, commissions, and authorities over which the Commonwealth exercises, or has the ability to exercise, oversight authority. VA529 is an integral part of the reporting entity of the Commonwealth of Virginia and is included in the Commonwealth’s basic financial statements.

The following is a summary of significant accounting policies employed by VA529.

A. Basis of Presentation

The accompanying financial statements have been prepared in conformance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB).

B. Reporting Entity

The accompanying financial statements report the financial position, changes in financial position and cash flows of VA529 as of and for the fiscal year ended June 30, 2018. For financial reporting purposes, VA529 includes all funds and entities over which VA529 is financially accountable and exercises oversight authority. The financial statements of VA529 do not include the assets, liabilities and operations of CollegeAmerica, CollegeWealth, and ABLEnow.

C. College Savings Systems

College Savings Systems (CSS), the legacy software development and technical services division of VA529, was formed in 2004. VA529 has an agreement with Ellucian to maintain the College Savings Program (CSP) module of the Banner software suite. CSS provided record keeping software and technical services to other savings and prepaid qualified tuition plans including Virginia. On June 27, 2016, VA529 notified states with open contracts of its intent to terminate contracts. CSS provided services for one remaining state during fiscal year 2018. Services were provided under the terms of this remaining contract until final termination in November 2017. With the final contract terminated, CSS was dissolved and the staff absorbed into the current Information Technology Division.

D. Measurement Focus, Basis of Accounting, and Financial Statement Presentation

VA529 reports the activity of the Prepaid529 program as an enterprise fund, which is a type of proprietary fund. Enterprise funds typically account for transactions related to resources received and used for financing self-supporting entities that offer products and services for a fee to external users. All operating expenses and revenue collected to support VA529 operations, including administrative fee revenue and expenses of Invest529, CollegeAmerica, CollegeWealth, and ABLEnow are reflected in the enterprise fund.

VA529 reports the activity of the Invest529 program as a private-purpose trust fund, which is a type of fiduciary fund. Private-purpose trust funds account for transactions of trust arrangements in which the principal and income benefit individuals, private organizations, or other governments.

The financial statements of the proprietary and fiduciary funds are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when


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earned and expenses are recognized when a liability is incurred, regardless of the timing of related cash flows.

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and/or producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. Revenues and expenses not meeting this definition are reported as nonoperating. The principal enterprise fund revenues of VA529 are Prepaid529 contract payments for program participants and investment income. VA529 enterprise fund expenses include tuition benefits expenses.

VA529’s operating component is presented in a separate column, providing transparency in reporting operating position and activity. Operating revenues include administrative and other fees received from CSS, prior to its dissolution, as well as the Prepaid529, Invest529, CollegeAmerica, CollegeWealth, and ABLEnow programs. Operating expenses include contractual and personal services.

E. Cash Equivalents and Investments

Money market investments of VA529, which are deemed short-term, highly liquid investments, are reported at amortized cost. Long-term investments of VA529 are reported at fair value based upon quoted market prices, except for stable value investments, which are reported at contract value. Cash equivalents are investments with an original maturity of three months or less. Investments are reported on a trade date basis. Trade date accounting accurately depicts VA529’s financial position as of fiscal year end, as all securities pending settlements at June 30, 2018 are incorporated in the reported values.

VA529 also participated in the Commonwealth’s General Account pool, which is managed by the State Treasurer. These pooled investments are valued on an amortized cost basis. VA529 receives no additional distribution of unrealized gains or losses in the fair values of the pool’s investments.

F. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

G. Prepaid529 Contract Payments

Prepaid529 contract purchasers may elect to pay their contract in full via a lump sum payment or over a period of time. Customized financing options are available for purchasers by allowing payments to be spread over a period of time determined by the contract purchaser. However, contracts must be paid in full prior to drawing benefits; therefore the maximum number of years available for those purchasers electing to pay over time is approximately equal to the number of years between the beneficiary’s current age and their expected college entrance date. Prepaid529 contract payments receivable represent the actuarially determined present value of future payments due from contract holders.

Approximately 51.64 percent of contract holders of outstanding (active) contracts as of June 30, 2018 had elected to pay over time.

H. Accounts Receivable

Accounts receivable reflected in VA529’s operating column of the enterprise fund reflect amounts due to VA529 at June 30th for administrative and other services provided. These amounts include second calendar quarter administrative fees collected on behalf of VA529 for the CollegeAmerica, CollegeWealth and ABLEnow programs.

The American Funds pays VA529 an annual fee equal to ten basis points (.10 percent) of the average daily net asset value of the underlying funds held in CollegeAmerica up to $20 billion. The


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fee is reduced to five basis points (.05 percent) for amounts in excess of $20 billion up to $100 billion with further reductions above $100 billion. This fee is calculated and accrued daily and paid to VA529 on a quarterly basis.

CollegeWealth’s banking partner, Branch Banking & Trust (BB&T) pays VA529 an annual fee equal to ten basis points (.10 percent) of the average daily assets held in 529 bank accounts under the Program. These fees are calculated, accrued and paid to VA529 on a quarterly basis.

PNC Bank pays VA529 an annual fee equal to ten basis points (.10 percent) of the assets held in the ABLEnow program’s investment options. This fee is calculated and accrued daily and paid to VA529 on a quarterly basis.

I. Deferred Outflows and Deferred Inflows of Resources

Deferred outflows of resources are a consumption of assets by VA529 that is applicable to a future reporting period. Deferred inflows of resources are an acquisition of assets by VA529 that is applicable to a future reporting period. VA529 reported deferred inflows and outflows for the fiscal year relating to pensions and other post-employment benefits (OPEB) in accordance with GASB Statement Nos. 68 and 75, respectively.

Changes in net pension liability not included in pension expense are reported as deferred outflows of resources or deferred inflows of resources. Changes in net OPEB liability or asset not included in personal services expense are reported as deferred outflows of resources or deferred inflows of resources. Employer contributions subsequent to the measurement date of the liabilities or assets are reported as deferred outflows of resources. For additional information, see Note 11, Retirement and Pension Plan; Note 12, Other Post-employment Benefits – Group Life Insurance Program, Virginia Sickness and Disability Plan and State Employee Health Insurance Credit Program; and Note 13 Other Post-employment Benefits – Healthcare Plan for Pre-Medicare Retirees.

J. Administrative Expenses and Budget

VA529 is an independent state agency that does not receive a general fund appropriation from the Commonwealth of Virginia. However, VA529’s operating expenditures, funded with non-general fund revenues, are included in the Commonwealth’s Appropriation Acts and accordingly are subject to approval by the General Assembly and the Governor. The Board annually reviews and approves an operating budget. Operating expenses are primarily funded from administrative fee revenue. VA529 prepares and submits a biennial budget to the Commonwealth in compliance with biennial budgetary requirements (cash basis). Also, in accordance with its fiduciary responsibility, the Board reviews a comparison of actual versus budgeted expenses each quarter.

K. Capital Assets

Tangible assets are recorded at cost at the time of acquisition and are reported net of accumulated depreciation. VA529 capitalizes all property, plant, and equipment that have a cost or value greater than $5,000 and an expected useful life greater than two years. Depreciation is computed on a straight-line basis over the estimated useful life of the property. Intangible assets with a value of $100,000 or greater are capitalized, except for internally generated software. Internally generated software with a value of $1,000,000 or greater is capitalized. Intangible assets, if depreciated, are amortized over their useful lives.

Intangible assets are nonfinancial in nature, lack physical substance and have an initial useful life extending beyond a single reporting period. These assets may be acquired by purchase or license, through non-exchange transactions, or internally generated. Intangible assets are also capital assets and adhere to the same policies of other property, plant and equipment. VA529 has two types of intangible assets, purchased and internally generated computer software, which are reported in Note 9, Capital Assets.


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L. Amounts Due To Program Participants

Amounts due to program participants reflects accrued amounts due and payable at June 30, 2018 for distributions to other qualified tuition programs, or to participants for cancelled or overpaid prepaid contracts or savings accounts. In the Fiduciary Statement of Net Position, Due to Program Participants also includes contributions received from participants that have yet to settle. These funds are classified as a liability until the settlement process is complete.

M. Accrued Leave Policy

Since January 1, 2016, VA529 has administered a Paid Time Off (PTO) Policy with a defined leave year of January 1 through December 31. VA529 provides a bank of PTO that employees may use at their discretion for absences, including vacation, sick, community service, and various other leave types. The Policy applies to all leave-eligible employees including regular full-time and regular part-time employees.

When the Policy became effective, employees’ existing annual leave balances converted to an annual bank up to the maximum carryover amount as dictated by VA529’s previous annual leave policy. This bank will be available for employees’ use throughout their remaining tenure with VA529 and will pay out upon termination according to the provisions below. While employees may use this time in lieu of or in addition to their PTO, they do not accrue time in the annual bank.

Employees accrue PTO at a rate of 8.3 to 13.3 hours semi-monthly, depending on their length of service. The maximum accumulation within the year is dependent upon years of service, but in no case may it exceed 40 days at the end of the calendar year. Regular part-time employees who retain eligibility for benefits receive a pro-rated accrual of PTO based on the number of regularly scheduled hours and state tenure. Employees may carryover up to 80 hours of unused PTO each year.

Employees are eligible annually for a partial payout of PTO time that was accrued but not used in the previous year. The payout of unused leave will occur automatically after the end of the plan year, by February 1 of the subsequent plan year, provided certain conditions are met as specified in the PTO Policy. Eligible accrued but unused PTO will be paid out at 50 percent of the employee’s current salary up to a maximum of three to ten days based on total state tenure. Employees have the option to receive a taxable cash payment or they may defer their payment to their 457(b) deferred compensation retirement account.

All employees leaving the agency are paid for accrued but unused leave up to a maximum limit, not to exceed 36 days for 15-19 years of service and 42 days for 20 or more years of service, at their current earnings rate. Employees having a negative PTO balance must pay VA529 the value of the borrowed leave as described in the PTO Policy.

In conformance with Section C60 of GASB Codification, the monetary value of accumulated leave payable upon termination is included in the accompanying financial statements. The liability at June 30, 2018, was computed using salary rates effective at that date and represents annual bank, PTO bank, overtime and disability credits held by employees up to the allowable ceilings, including the liability for VA529’s share of Social Security and Medicare taxes on leave balances for which employees will be compensated.

N. Other Postemployment Benefits

VA529 eligible employees participate in postemployment benefit programs that are sponsored by the Commonwealth and administered by the Virginia Retirement System (VRS). These programs include the Group Life Insurance Program (GLIP), Virginia Sickness and Disability Program (VSDP), and the Retiree Health Insurance Credit Program (HICP). All but one VA529 employee participates in the VSDP.

The GLIP is a multiple-employer, cost-sharing, defined benefit plan that provides members basic group life insurance upon employment. The VSDP is a single employer plan that is presented as a multiple-employer, cost-sharing plan that in addition to sick, family and personal leave and short-term and long-term disability benefits provided to active members during employment, provides inactive members with long-term disability and long-term care benefits. The HICP is a single


36

employer plan that is presented as a multiple-employer, cost-sharing plan that provides member retirees who have at least 15 years of service health insurance credits to offset their monthly health insurance premiums. GLIP, VSDP and HICP benefit payments are recognized when due and payable in accordance with benefit terms and investments are reported at fair value. The GLIP liability, VSDP asset, HICP liability, deferred outflows and inflows of resources are determined on the same basis as reported by VRS. See Note 12 Group Life Insurance Program, Virginia Sickness and Disability Plan and State Employee Health Insurance Credit Program for additional information on these VRS benefit programs.

VA529 also participates in the postemployment Pre-Medicare Retiree Healthcare Plan (PMRHP), which is sponsored by the Commonwealth and administered by the Department of Human Resources Management (DHRM). The plan provides the option for retirees who are not eligible to participate in Medicare to participate in the Commonwealth’s healthcare plan for its active employees. VA529 does not pay a portion of the retirees’ healthcare premium because both active employees and retirees are included in the same pool for purposes of determining health insurance rates. This generally results in a higher rate for active employees. Therefore, VA529 effectively subsidizes the costs of the participating retirees’ healthcare through payment of the employer’s portion of premiums for active employees.

The PMRHP is a single-employer defined benefit plan that is presented as a cost-sharing plan. The PMRHP is reported as part of the Commonwealth’s Healthcare Internal Service Fund. There are no assets accumulated in a trust to pay benefits. Benefit payments are recognized when due and payable in accordance with the benefit terms. The PMRHP liability, deferred outflows and inflows of resources are determined on the same basis as reported by DHRM. See Note 13 Healthcare Plan for Pre-Medicare Retirees for additional information.

Additional information related to all of these programs or plans is available at the state-wide level in the Commonwealth’s Comprehensive Annual Financial Report.

O. Prepaid529 – Investment in Real Estate

In 2008, VA529 established Aventura Holdings LLC, a limited liability company, to purchase a 48,500 square foot office building in Chesterfield County, Virginia; such purchase was funded by Prepaid529. The investment in Aventura is reflected in Prepaid529’s assets at $7.6 million as of fiscal year end. The value was determined by a professional real estate appraisal in June 2018.

VA529 is the sole member of Aventura and VA529’s Chief Executive Officer, Chief Financial Officer and Chief Administrative Officer are its only non-equity managers. VA529 leases the building from Aventura. A Second Amendment to the Lease was entered into by VA529 for another ten years beginning July 1, 2018, upon the first option lease renewal that expired on June 30, 2018.

The Lease is carried as an operating lease in the enterprise fund financial statements. Prior to the expiration of the first option lease on June 30, 2018, the Lease was reflected as a capital lease and VA529’s financial statements reflected the lease obligation as a liability and the office building as an asset in the enterprise fund’s financial statements. The Lease was removed from the enterprise fund as a capital lease in 2018 and a loss was recorded in the enterprise fund. See the Commitments Note 7 below for a description of the Lease Agreement. Aventura has also established a renewal and replacement reserve funded from the annual rental payments received from VA529 to cover capital improvements to the building.

P. Pensions

The Virginia Retirement System’s (VRS) State Employee Retirement Plans are single employer pension plans that are treated like cost-sharing plans. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the VRS State Employee Retirement Plan; and the additions to/deductions from the VRS State Employee Retirement Plan’s net fiduciary position have been determined on the same basis as they were reported by VRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when


37

due and payable in accordance with the benefit terms. Investments are reported at fair value. See Note 11, Retirement and Pension Plan for additional information.

2. Beginning Net Position Restatement (Enterprise Fund)

The Enterprise Fund’s 2018 beginning net position of $784.8 million differs from the previous fiscal year’s ending balance of $786.8 million as reported in VA529’s fiscal 2017 financial statements. The difference of $2.0 million primarily resulted from a required beginning balance adjustment to recognize the VA529’s proportionate share of the Commonwealth’s net OPEB liability (asset) as VA529 implemented GASB Statement No. 75, Accounting and Financial Reporting for Other Postemployment Benefits Other Than Pensions. See Notes 12 and 13 for additional information on these benefit programs.

3. Cash, Cash Equivalents, and Investments

VA529’s Board has established Statements of Investment Policy and Guidelines for its investment programs in accordance with §23.1-706 of the Code of Virginia, as amended. This section of the Code requires the Board to discharge its duties in a manner which will provide the investment return and risk level consistent with the actuarial return requirements and cash flow demands of VA529 and conforming to all statutes governing the investment of VA529 funds. The Board shall exercise the judgment of care under the circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but to the permanent disposition of funds, considering the probable income as well as the probable safety of their capital when investing funds. In order to meet the return requirements, VA529’s portfolio shall be invested in a broadly diversified investment portfolio including, but not limited to, domestic and foreign stocks, bonds, mutual funds, collective trust funds, hedge funds, private equity funds and cash equivalent investments, which are defined as investments with an original maturity of three months or less. The Board’s allocation target for the Prepaid529 portfolio, at market value, is 32.5 percent equities, 52.5 percent fixed income, and 15 percent alternatives. The Board’s allocation targets for the Invest529 and ABLEnow programs vary according to the investment objective of each portfolio.

To assist the Board in fulfilling its fiduciary duty with the investment of VA529 assets, the Board-appointed IAC provides objective and prudent investment advice on all matters related to the management of investments, within the parameters set by the Board’s Statement of Investment Policy and Guidelines and the IAC’s Charter. The Board has also selected a group of 31 external managers. See complete lists of investment managers in Appendices A and B. In addition, Prepaid529 contractual payments are considered Commonwealth revenue and as a result must pass through the State Treasury. Prior to being moved to VA529’s custodian, these monies along with other minor balances may be invested with the State Treasurer as part of the Commonwealth's General Account. The Appropriation Act includes a provision for the allocation of interest on balances held at the State Treasury to VA529 and certain other agencies. Accordingly, VA529 received interest earnings on a quarterly basis from the Commonwealth based on its relative participation during the quarter.

Invest529 contributions are excluded as Commonwealth revenue and accordingly are deposited directly with VA529’s financial institution, Wells Fargo Bank N.A.

The Board has authorized its partner, the American Funds, to offer a subset of their mutual funds to investors in CollegeAmerica. At fiscal year-end, 43 mutual funds were approved and available for investment through the CollegeAmerica program. The Board has oversight and review authority for the investment activity and operations of the CollegeAmerica program. The American Funds is required to seek renewed approval of the use of these mutual funds on an annual basis.

The Board has selected and authorized its partner, PNC, to offer three target risk mutual funds and a money market mutual fund to investors in the ABLEnow program.

Private Debt & Equity Investment Commitments

In fiscal year 2018, VA529 extended investment commitments under limited partnership agreements for private equity and debt investments in Prepaid529. At June 30, 2018, VA529’s investment commitments amounted to $188 million.


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Custodial Credit Risk Custodial Credit Risk – Deposits: Custodial credit risk is the risk that in the event of a bank failure, VA529’s deposits may not be returned to it. VA529 does not hold deposits for CollegeAmerica, CollegeWealth, or ABLEnow. All deposits of the Prepaid529 and Invest529 programs, except those in the FDIC-Insured Omnibus Account, are secured in accordance with the provisions of the Virginia Security for Public Deposits Act, Section 2.2-4400, of the Code of Virginia.

Custodial Credit Risk – Investments: For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, VA529 will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. At June 30, 2018, all investments of the Prepaid529 and Invest529 programs, except those investments in open-end mutual funds, certain collective trusts, private equity or hedge funds, were held in VA529’s name by VA529’s custodian, BNY Mellon Asset Servicing. Approximately 67 percent of total Prepaid529 investments and 72 percent of total Invest529 investments are invested in vehicles that are not held in VA529’s name by its custodian. All investments of the CollegeAmerica program are invested in American Funds mutual funds. Investments in open-end mutual funds, collective trusts, private equity and hedge funds are not directly exposed to custodial credit risk because their existence is not evidenced by individual securities held by the custodian.

Interest Rate Risk – Fixed Income Securities

As of June 30, 2018, VA529 had fixed income investment securities held in Prepaid529 and Invest529 with the following maturities and effective duration. Effective duration is a measure of interest rate and price sensitivity that takes into account options, such as early call provisions, embedded in the securities. It is widely used in the management of fixed income portfolios as it quantifies the risk of interest rate changes.

Money Market Funds $ 65,396,853 0.08 Bank Loans 246,324,150 0.12 Non-Agency Mortgage-Backed Securities

26,480,188 2.28

Mortgage-Backed Securities - Agency

31,713,308 4.11

Asset-Backed Securities 36,620,861 0.60 Corporate Bonds 236,048,026 2.72

Convertible Securities1 113,351,626 3.03

Bond Funds1 551,688,268 5.05

Treasury and Agency Futures Contracts

407,508 7.25

Stable Value2 134,488,154 3.27

Total $ 1,442,518,942 3.09

Money Market Funds $ 51,172,758 0.08 Bank Loans 1,912,802 0.83 Asset-Backed Securities 5,633,755 0.08 Corporate Bonds 111,054,949 2.71 Bond Funds 983,767,704 6.34

Stable Value2 989,143,187 3.48

Total $ 2,142,685,155 4.66

Effective Duration (years)

Investment Type Fair Value

Prepaid529

Invest529

Effective Duration (years)

Fair ValueInvestment Type

1Effective duration for convertible bonds and convertible bond funds is calculated using a methodology that takes into account the duration impact of equity warrants and rate-sensitive instruments. 2Reported at contract value.

VA529’s Statements of Investment Policy and Guidelines do not limit investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Although not an explicit requirement, duration of fixed income portfolios, if applicable, is expected to be within +/-20 percent of each portfolio’s designated benchmark.


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Credit Risk of Fixed Income Securities

VA529’s Statements of Investment Policy and Guidelines require its fixed income securities managers to invest in holdings which, on average, are comprised of high quality securities and may not include securities deemed to be below investment grade. Investment grade is generally defined as a rating of BBB or above by one of the three major rating agencies. This requirement does not apply to VA529’s managers who are instructed to manage a specific investment strategy (e.g., high-yield fixed income), whether in a separate account or as a dedicated allocation within a broader fixed income portfolio. VA529’s fixed income investment securities held in Prepaid529 and Invest529 as of June 30, 2018 were rated by Standard Poor’s (S&P) and/or Moody’s and the ratings are presented in the charts entitled credit quality by investment type.

Concentration of Credit Risk

At June 30, 2018, VA529 had no investment securities held in separately managed accounts in Prepaid529 and Invest529 in any one issuer that represented 5 percent or more of total investments.

Mutual Fund Risks

At June 30, 2018, VA529 participated in a number of open-end domestic and foreign equity and fixed income mutual funds and collective trusts in Prepaid529 and Invest529. These funds are subject to various investment risks, including the possibility that the value of the fund’s portfolio holdings may fluctuate in response to events specific to the companies in which the fund invests, as well as economic, political or social events in the United States and abroad. Certain mutual funds may be subject to additional risks due to investments in a more limited group of sectors and industries than the broad market. Those funds with holdings issued by entities based outside the United States are subject to foreign securities risks, including currency fluctuations.

The value of and the income generated by fixed income securities held by certain mutual funds in which VA529 participates, may be affected by changing interest rates and credit risk assessments. Lower quality or longer maturity bonds may be subject to greater price volatility than higher quality or shorter maturity bonds.

Prospectuses for each of the mutual funds in which VA529 participates may be requested from VA529, 9001 Arboretum Parkway, North Chesterfield, VA 23236, or at Virginia529.com. A prospectus may also be requested directly from each of the underlying fund managers. Prospectuses for each CollegeAmerica mutual fund offering may be obtained directly from the American Funds or from a financial adviser. Please see Supplementary and Other Information for a listing of Prepaid529, Invest529, CollegeAmerica and ABLEnow mutual funds.

Foreign Currency Risk

Foreign currency risk is the risk that changes in currency exchange rates will adversely affect the fair value, in U.S. dollars (USD), of non-USD denominated securities. At June 30, 2018, VA529 had indirect exposure to this risk through its investments in certain mutual funds and other pooled vehicles. More information relating to currency risk in VA529's mutual fund investments can be found in each fund's prospectus.

VA529 has direct exposure to foreign currency risk through investments held in the convertible bonds account managed by Advent Capital Management, LLC. Advent invests in both domestic and international securities and uses currency forward contracts to hedge risks associated with currency fluctuations. The table below shows exposures to non-USD denominated currencies by asset class. A similar exhibit showing non-USD denominated currency exposure associated with the forward contracts is included in Note 4, Investment in Derivative Instruments and Stable Value.


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British Pound Sterling $ 706,275 $ 448,486 $ 1,154,761 Canadian Dollar - 688 688 Chinese Yuan 2,105,803 - 2,105,803 Euro 20,053,047 433,770 20,486,817 Hong Kong Dollar 7,407,956 1,147 7,409,103Japanese Yen 10,924,812 6,176 10,930,988 Singapore Dollar - 5,499 5,499 Sw edish Krona - 3 3Sw iss Franc 5,448,011 351 5,448,362Total $ 46,645,904 $ 896,120 $ 47,542,024

Prepaid529 Foreign Currency Exposures by Asset Class

Currency Convertible Bonds Cash & Cash Equivalents Total

Note: Amounts shown in U.S. dollars using June 30, 2018 foreign exchange rates.

Counterparty Risk

Counterparty risk is the risk of loss arising from the failure of one party to a transaction to fulfill its contractual obligation to the other. VA529 has exposure to counterparty risk through its investments. Higher levels of this risk are attributable to VA529’s investments in hedge funds, as these types of investments are subject to the potential usage of over-the-counter derivative transactions. Other potential examples of risk for over-the-counter transactions may include transaction costs/inefficiencies/errors, fraud or reputation risk. As of June 30, 2018 approximately 5 percent of Prepaid529 investments were invested in these vehicles.

Rating AgencyCorporate

BondsAsset-Backed

Securities Bank LoansMoney Market

Funds Bond Funds2 Stable Value3

S&P's Quality RatingAAA - 1,063,287$ - 51,172,758$ - - BBB- 2,040,640$ - - - - - BB+ 10,987,495 - - - - - BB 15,535,437 - - - - - BB- 19,957,763 - - - - - B+ 18,505,428 - - - - - B 20,313,027 - 1,456,502$ - - - B- 11,456,842 - 456,300 - - - Less than B- 9,595,762 - - - -

Moody’s Quality Rating Aaa - 4,570,468 - - - - Ba3 769,869 - - - - - B1 181,250 - - - - - B3 202,250 - - - - - Caa1 - - - - - -

Unrated1 1,509,188 - - - 983,767,705$ 989,143,187$

Invest529 Credit Quality by Investment Type

1Securities have not been rated by either Standard & Poor’s or Moody’s 2Funds are not rated directly by S&P, however the underlying investments weighted average credit quality rating is A+ 3Stable Value Contracts are not rated directly by S&P, however the underlying investments weighted average credit quality rating is AA


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Rating Agency

Non-Agency Mortgage-Backed

Securities

Asset-Backed

Securities

Mortgage-Backed Securities - Agency

Bank Loans Corporate

Bonds Convertibles

Money Market Funds

Bond Funds2

Treasury and Agency Futures

Contracts

Stable Value3

S&P

AAA 1,590,147$ 7,855,773$ 344,806$ - - - 45,784,312$ - - -

AA+ 1,995,888 - 18,695,189 - - - - - - -

AA 890,756 1,967,326 - - - - - - - -

A+ 1,982,218 301,649 - - - 5,812,079$ - - - -

A 2,461,375 2,504,625 - 309,772$ - 6,135,723 - - - -

A- 1,159,740 - - - 12,266,337 - - - -

BBB+ - 1,147,704 - - - 6,117,479 - - - -

BBB 780,238 518,198 - - - 3,479,025 - - - -

BBB- 246,670 372,201 - 17,559,553 4,497,027$ 6,669,650 - - - -

BB+ - 306,789 - 18,711,903 24,255,679 - - - - -

BB - - - 15,832,801 32,948,936 - - - - -

BB- 1,049,864 - - 34,100,606 44,020,436 1,089,215 - - - -

B+ - - - 29,217,823 39,633,369 2,751,053 - - - -

B - - - 71,592,066 39,515,365 - - - - -

B- - 802,704 - 16,170,890 24,391,221 - - - - -

Less than B- 21,075 1,790,516 - 7,142,876 20,401,737 859,475 - - - -

Moody's

Aaa 3,769,886 17,231,092 - 1,563,940 - - - - - -

A3 262,697 1,024,533 - - - 3,605,075 - - - -

Baa1 683,165 - 1,019,686 358,537 - - - - - -

Baa2 264,636 - - - - 3,315,904 - - - -

Baa3 691,142 - - - - 4,742,052 - - - -

Ba3 - - - 452,195 1,747,875 - - - - -

B1 106,922 - - - 430,469 - - - - -

B2 - - - 521,186 - - - - - -

Less than B2

1,579,413 605,366 - 1,503,757 353,938 - - - - -

Unrated1 6,944,357 192,383 11,653,626 31,286,245 3,851,976 56,508,558 19,612,541 551,688,268$ 407,508$ 134,488,154$ 1Securities have not been rated by either Standard & Poor’s or Moody’s2Funds are not rated directly by S&P, how ever the underlying investments w eighted average credit quality rating is A3Stable Value Contracts are not rated directly by S&P how ever the underlying investments w eighted average credit quality rating is AA

Prepaid529 Credit Quality by Investment Type


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4. Investment Derivative Instruments and Stable Value

GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, requires that VA529 disclose its exposure to investment derivative instruments and certain investments described as synthetic guaranteed investment contracts.

A) Investment Derivatives:

Pursuant to the Statements of Investment Policy and Guidelines established for VA529’s investment programs, investments in derivative securities are prohibited except where specifically permitted in the investment manager agreement for a separate account or prospectus for a fund. The Board may permit managers in certain asset classes to use derivatives consistent with the overall investment guidelines and objectives of that asset class. As of June 30, 2018, three separate account managers were permitted to use derivatives as shown in the table below.

Program Manager Asset Class

Prepaid529 PGIM Fixed Income High-yield Fixed Income

Invest529 PGIM Fixed Income High-yield Fixed Income

Prepaid529 Schroders Investment Management North America, Inc.

Mortgage-Backed Securities

Prepaid529 Advent Capital Management, LLC Convertible Bonds

(i) Derivatives held in PGIM Fixed Income Accounts

Pursuant to its investment management agreement, PGIM Fixed Income may invest in derivatives for hedging, duration and cash management. The portfolio’s exposure to derivatives, as measured on a net market value basis, is limited to 10 percent of the market value of the high-yield account. Neither the Invest529 nor Prepaid529 PGIM Fixed Income accounts held any derivatives at June 30, 2018.

(ii) Derivatives held in Schroders Investment Management Account

Pursuant to its investment management agreement, Schroders Investment Management may invest in derivatives for hedging, and duration management. The portfolio’s notional exposure to derivatives, as measured on a net market value basis, is limited to 10 percent of the market value of the account. U.S. Treasury futures used to hedge duration are excluded from the 10 percent limit. At June 30, 2018, the only derivatives held in the account were U.S. Treasury futures. The following table contains information relating to fair value, changes in fair value and notional value of these derivative instruments. Credit risk is mitigated with these instruments as they are exchange traded.

Investment Derivatives – U.S. Treasury Futures Contracts

Changes in Fair Value Fair Value at June 30, 2018

Classification Amount

Classification Amount Notional Amount Enterprise

Fund Revenue $487,898

Investment $407,508 $26,778,234

(iii) Derivatives held in Advent Capital Management Account

Pursuant to its investment management agreement, Advent Capital Management, LLC may invest in derivatives for hedging purposes or for efficient portfolio management. Synthetic positions are not allowed and the use of derivatives should not be considered as an alpha generator. Advent primarily uses forward foreign exchange contracts to hedge the value of investments denominated in non-U.S. dollar currencies. Credit risk of exchange traded currency contracts lies with the clearinghouse of the exchange at which the contracts are traded, while credit risk of currency contracts traded over the counter lies with the counterparty. Counterparty risk exposure is generally equal to the unrealized gain on in-the-money contracts. The following table contains a breakdown of these forward contracts by currency.


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British Pound Sterling ($1,224,315) $1,323,261 ($2,514,196) ($1,190,935)

Swiss Franc (3,489,890) 2,014,200 (5,511,364) (3,497,164)

Euro (24,257,922) 5,537,589 (29,549,827) (24,012,238)

Hong Kong Dollar (7,559,044) - (7,555,545) (7,555,545)

Japanese Yen (10,914,013) 1,204,899 (12,150,459) (10,945,560)

U.S. Dollar 47,445,183 57,566,420 (10,121,237) 47,445,183

Total - $67,646,370 ($67,402,627) $243,742

Prepaid529 Foreign Currency Forwards

Currency CostForeign Exchange

PurchasesForeign Exchange

SalesMarket Value

Note: Amounts shown in U.S. dollars using June 30, 2018 foreign exchange rates.

B) Stable Value:

GASB Statement No. 53 defines stable value investment vehicles as synthetic guaranteed investment contracts. Stable value funds are invested in a high quality, diversified, intermediate term, fixed income portfolio that is protected against interest rate volatility by wrap or investment contracts from banks and insurance companies that guarantee the payment of benefits at book value (cost plus accrued interest), which enables the entire investment to be carried at its book value. VA529 utilizes stable value investments in both the Prepaid529 and Invest529 programs. VA529’s stable value investments meet the definition of fully benefit-responsive synthetic guaranteed investment contracts and are reported at contract value. At June 30, 2018, VA529 had the following stable value investments outstanding in the respective programs as shown in the table below.

Prepaid529 American General Life $26,960,719 2/21/2014 Open ended 2.00%Nationw ide Life Insurance 25,624,555 4/19/2018 Open ended 2.34%RGA 27,180,839 6/22/2016 Open ended 2.35%State Street Bank 27,063,250 5/01/2002 Open ended 2.80%Voya Retirement & Annuity 27,658,790 12/03/2002 Open ended 2.81%

Invest529Nationw ide Life Insurance 103,177,977 1/29/2018 Open ended 2.32%Prudential Retirement Ins. & Annuity 179,350,846 1/30/2014 Open ended 2.40%RGA 177,098,814 8/28/2015 Open ended 2.27%State Street Bank 179,000,554 5/01/2002 Open ended 2.32%Voya Retirement & Annuity 174,842,943 10/05/2012 Open ended 2.55%

1/16/2014 Open ended 2.20%

Effective Date

Maturity Date

Crediting Rate

American General Life $175,672,052

Program Wrap ProviderNotional Amount

At June 30, 2018, the fair value of the underlying investments for both Prepaid529 and Invest529 was less than the book value (notional amount) of the wrap contracts. The book value of the wrap contracts provides a guaranteed minimum value that program participants would receive upon liquidation, and therefore has a separate fair value only in the circumstance that the fair value of the associated underlying investment pool is below the book value of the wrap contracts. The fair value of the wrap contracts is the amount required to bring the total value of the stable value investments up to the book value of the wrap contracts.

In the Prepaid529 program, the fair value of the wrapped stable value investments at June 30, 2018, was $132,727,146.

Prepaid529 - Stable Value Components Fair Value Underlying Investments $132,727,146 Wrap Contracts 1,761,008- Total $134,488,154


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In the Invest529 program, the fair value of the wrapped stable value investments at June 30, 2018, was $969,128,428.

Invest529 - Stable Value Components Fair Value Underlying Investments $969,128,428 Wrap Contracts __20,014,759- Total $989,143,187

5. Fair Value Measurement and Application

GASB Statement No. 72, Fair Value Measurement and Application, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes inputs of valuation techniques used to determine fair value. The hierarchy gives highest priority to valuations maximizing observable inputs and lowest priority to those utilizing unobservable inputs. The three levels of the fair value hierarchy are described below:

Level 1: Quoted prices in active markets for identical assets or liabilities

Level 2: Quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs other than quoted prices that are observable for the asset or liability

Level 3: Unobservable inputs

GASB Statement No. 72 also permits certain investments that do not have a readily determinable fair value to be reported at the investment’s Net Asset Value (NAV). These investments are excluded from the fair value hierarchy above and accordingly are reported in a separate table. The following exhibits represent VA529’s investments and related disclosures in accordance with GASB Statement No. 72 by program.

Prepaid529 investments measured at fair value as of June 30, 2018:

Prepaid529 Investments By Fair Value Fair Value

Quoted Prices in Active

Markets for Identical Assets (Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant Unobservable

Inputs (Level 3)

Debt Securities US Treasury & Agency Securities $407,508 $407,508 - - Corporate Bonds 236,048,027 - $236,048,027 - Convertible Bonds 113,351,626 - 113,351,626 - Bond Funds 76,225,002 76,225,002 - - Bank Loans 246,324,150 - 246,324,150 - Asset-Backed Securities 36,620,861 - 36,620,861 - Mortgage-Backed - Agency 31,713,308 - 31,713,308 - Mortgage-Backed - Non Agency 26,480,188 - 26,480,188 -

Total Debt Securities 767,170,669 76,632,510 690,538,160 - Equity Securities Equities 304,608,106 299,236,058 5,372,049 - Equity Real Estate 7,570,005 - - $7,570,005 Index Funds - Equity 94,220,395 94,220,395 - - International & Emerging Markets Funds 467,177,943 467,177,943 - -

Total Equity Securities 873,576,449 860,634,396 5,372,049 7,570,005

Total Investments by Fair Value Level $1,640,747,119 $937,266,905 $695,910,208 $7,570,005

Fair Value Measurements Using:

Note: Cash equivalent investments, in the amount of $66,292,769, that are measured at amortized cost are not c lassified in the fair value hierarchy and as a result, are not included in the above table.

Description of Prepaid529 investments measured at fair value: 1. Debt and equity securities classified in level 1 of the fair value hierarchy are valued using prices

quoted in active markets for those securities. Debt securities classified in level 2 of the fair value hierarchy utilize dealer quotes for similar securities traded in active markets. VA529's investment


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in real estate as the sole member of Aventura Holdings, LLC. is classified as a level 3 investment. The property value is determined annually at fiscal year-end by an independent real estate appraiser. The appraisal takes into account the comparable sales, cost and income approach in determining value.

2. Stable Value investments are held at contract value and are accordingly excluded from this

exhibit.

Prepaid529 investments measured at NAV:

Investments Measured at the NAV Fair ValueUnfunded

Commitments

Redemption Frequency

(if Currently Eligible)

Redemption Notice Period

Hedge FundsBlackstone - Hedge Fund of Funds $134,547,104 - Semi-Annual 95 DaysAurora - Hedge Fund of Funds 183,490 - Quarterly 95 Days

Equity Real EstateUBS Realty Investors 63,594,161 - Quarterly 60 Days

Private Debt & Private Equity Funds of FundsGolub Capital 10,500,000 $24,500,000Private Advisors 37,154,327 14,693,390 Adams Street Partners 116,165,120 88,417,900 LGT Capital Partners 2,054,578 8,340,000 Neuberger Berman 15,194,773 15,000,000 Aether Investment Partners 23,571,227 12,949,047 Commonfund 18,131,920 3,790,000 Horsley Bridge Partners - 20,000,000

Common Trust Funds & OtherWellington Management 178,881,790 - Monthly 10 DaysState Street Global Advisors 137,322,525 - Daily 2 DaysFerox Capital 76,512,005 - Daily 2 DaysBlackRock 82,746,946 - Daily 3 Days

Total Investments Measured at the NAV $896,559,966

Description of Prepaid529 investments measured at NAV:

1. Hedge Funds: This investment type includes two hedge funds. The Aurora Offshore Fund Ltd. II and Blackstone Partners Offshore Fund are diversified, multi-strategy hedge funds of funds. Underlying investment strategies include a range of asset classes and the funds are not restricted from participating in any market, strategy or investment. The Aurora Offshore Fund Ltd. II is liquidating and accordingly no redemptions may currently be initiated by investors. The remainder of this investment is expected to be returned in fiscal 2019. The fair value of investments in this type has been determined using the NAV per share of the investments.

2. Equity Real Estate: This investment type includes one limited partnership. The UBS Trumbull Property Fund's investment strategy is to invest primarily through direct equity-owned real estate assets. The fund also has flexibility to invest in joint venture and debt investments. Investments are generally acquired on an all-cash basis, however debt may be used where UBS determines leverage is prudent and is expected to enhance total return without undue risk. The fair values of investments in this type have been determined using the NAV per share of VA529's ownership of the partnership.

3. Private Debt and Private Equity Funds of Funds: This investment type includes private equity funds of funds managed by seven managers and one private debt fund. These investments cannot be redeemed from the fund. Capital is generally expected to be called during the initial 4 to 5 years and is expected to be returned through liquidations of underlying fund investments during the 3rd through 15th years. Secondaries funds of funds may have an accelerated capital call and return of


46

capital profile. VA529 invests in multiple funds with three of its private equity investment managers and is also diversified by vintage year with respect to these investments. The fair values of investments in this type have been determined using the March 31, 2018 NAV of VA529's ownership of the partnership, adjusted for cash flows (capital calls) through June 30, 2018. The following table provides information for this investment type by investment manager, fund name and underlying investments.

Investment Manager Fund Name(s) Invests In

Adams Street PartnersMultiple U.S./Non-U.S. Centric Buyout Funds

Emerging Markets U.S.and Non-U.S. Developed Markets Funds

Adams Street Partners Venture Innovation Funds I & II Venture

Commonfund Capital Natural Resources Fund IX, LP Natural Resources

Aether Investment Partners, LLC

Real Assets III & IV, LP Funds Natural Resources

Private Advisors, LLCMultiple small company buyout/private equity funds

U.S. small company growth equity/buyout, distressed and turnaround, and opportunistic funds

LGT Capital Partners Crown Global Secondaries Fund IV, plc Private equity secondaries (Global)

Neuberger BermanCrossroads Fund XXI - Asset Allocation, LP

Asset allocation fund of funds; diversified geographically and strategically

Horsely Bridge Partners XII Growth Buyout, LPU.S. small company buyout (Growth)

Golub Capital Golub Capital Partners 11, LPPrivate Debt - U.S. middle markets, senior secured, low / floating rate loans

4. Common Trust Funds & Other: This investment type includes three common trust funds. The fair

value of investments in this type have been determined using the NAV per share of the investments. The following table provides information for this investment type by investment manager, fund name and underlying investments.


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Investment Manager Fund Name(s) Invests In

State Street Global AdvisorsU.S. Treasury Inflation Protected Securities Index Non-Lending Common Trust Fund

Securities or other pooled vehicles in order to track performance of the Barclays Capital U.S. Treasury Inflation Protected Securities Index

Wellington Management Co., LLP

Emerging Market Debt Common Trust Fund

Securities, derivatives, private placements or other pooled vehicles in order to generate excess returns over the J.P. Morgan Emerging Markets Bond Index Plus.

BlackRock, Inc.Intermediate Term Credit Core Bond Index Non-Lendable Fund "B"

The index fund seeks to approximate the total rate of return of the Barclays Intermediate Credit Bond Index, which consists of credit bonds with maturities between one and ten years.

Ferox Capital, LLP Salar Fund PLC

A UCITS compliant Dublin, Ireland based Public Limited Company with an investment strategy in long-only global convertible bonds

Description of Invest529 investments measured at fair value:

1. Debt and equity securities classified in level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Debt securities classified in level 2 of the fair value hierarchy utilize dealer quotes for similar securities traded in active markets.

2. Stable Value investments are held at contract value and are thus excluded from this exhibit. Invest529 investments measured at fair value as of June 30, 2018:

Investments By Fair Value Level Fair Value

Quoted Prices in Active Markets for Identical Assets

(Level 1)

Significant Other Observable

Inputs (Level 2)

Significant Unobservable

Inputs (Level 3)

Debt Securities Corporate Bonds 111,054,949$ - 111,054,949$ - Bank Loans 1,912,802 - 1,912,802 - Asset Backed Securities 5,633,755 - 5,633,755 - Emerging Markets - Debt 218,124,508 218,124,508$ - - Index Funds - Debt 765,643,197 765,643,197 - -

Total Debt Securities 1,102,369,210 983,767,705 118,601,505.44 -

Equity Securities Equities 81,227,665 81,227,665 - - Equity Real Estate 101,712,661 101,712,661 - - Index Funds - Equity 1,582,765,266 1,582,765,266 - - Equity Funds 51,729,354 51,729,354 - - International & Emerging Markets Funds 377,630,409 377,630,409 - -

Total Equity Securities 2,195,065,354 2,195,065,354 - -

Total Investments by Fair Value Level 3,297,434,565$ 3,178,833,059$ 118,601,505$ -$

Fair Value Measurements Using

Note: Cash equivalent investments, in the amount of $51,172,758, that are measured at amortized cost are not classif ied in the fair value hierarchy and as a result, are not included in the above table.


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Invest529 investments measured at NAV:

Investments Measured at the NAV Fair ValueUnfunded

Commitments

Redemption Frequency (if

Currently

Redemption Notice Period

Equity Real EstateUBS Realty Investors 66,079,698$ - Quarterly 60 DaysBlackstone Property Partners 38,794,924 - Quarterly 90 Days

Total Investments Measured at the NAV 104,874,622$

Description of Invest529 investments measured at NAV:

Equity Real Estate: This investment type includes two limited partnerships. The UBS Trumbull Property Fund's investment strategy is to invest primarily through direct equity-owned real estate assets. The fund also has flexibility to invest in joint venture and debt investments. Investments are generally acquired on an all-cash basis, however debt may be used where UBS determines leverage is prudent and is expected to enhance total return without undue risk. Blackstone Property Partners is an open ended commingled fund seeking core plus real estate investments in the U.S. and Canada. The fair values of investments in this type have been determined using the NAV per share of VA529's ownership of the partnership. 6. Securities Lending Transactions

As of June 30, 2018, there were $367,970 in investments and cash equivalents held by the Treasurer of Virginia that represent VA529’s allocated share of cash collateral received and reinvested and securities received for the State Treasury’s securities lending program. The Treasurer of Virginia is authorized to enter into securities lending transactions – loans of securities to broker-dealers and other entities for collateral with a simultaneous agreement to return the collateral for the same securities in the future – for a fee. The Commonwealth’s policy is to record unrealized gains and losses on the State Treasury’s securities lending program in the General Fund in the Commonwealth’s basic financial statements. When gains or losses are realized, the actual gains and losses are recorded by the affected agencies. Accordingly, VA529 recorded interest of $2,014 for securities lending transactions in fiscal year 2018. Information related to the State Treasury’s securities lending program is available on a statewide level in the Commonwealth of Virginia’s Comprehensive Annual Financial Report found at https://www.doa.virginia.gov/ by selecting “Reports” and “Comprehensive Annual Financial Report”.

7. Commitments

VA529 is committed under operating leases for business equipment, single office space rental, and VA529’s headquarters office building. The equipment lease is for a three-year term. The single office space rental is for one year, automatically renewing each year. In all cases, VA529 expects that in the normal course of business, these leases will be renewed or replaced by similar leases.

The total rental expense for the equipment and single office space was $311,802 for the fiscal year ended 2018. As of June 30, 2018, VA529 had the following total future minimum rental payments due under these leases.

Amount 199,415$ 127,247 64,367 16,487

407,516$

2022Total future minimum rental payments*

Fiscal Year201920202021

* Total does not include operating lease payments for the Arboretum Building referenced below


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On July 1, 2018, VA529 entered into a 10-year extension of its Lease Agreement with Aventura Holdings, LLC under which it leases the 48,500 square foot headquarters office building through June 30, 2028. Prior to the expiration of the first option lease on June 30, 2018, the Lease was reflected as a capital lease and VA529’s financial statements reflected the lease obligation as a liability and the office building as an asset in the enterprise fund’s financial statements. The Lease was removed from the enterprise fund as a capital lease in 2018 and a loss was recorded in the enterprise fund.

Pursuant to the Lease, VA529 will make base rent payments as reflected below on an annual basis in advance, and will make additional rent payments on a quarterly basis in advance in an amount sufficient to pay building operating costs for the next quarter. Aventura has entered into an agreement with a property management company for the purpose of providing facilities maintenance, grounds keeping, custodial services, etc. The additional rent payments will cover operating costs incurred by Aventura under the property management agreement. At the end of each quarter, VA529 and Aventura reconcile expenses before funding operating expenses for the subsequent quarter.

Annual Base Rent

652,913$

669,235

685,966

703,115

720,693

3,882,905

7,314,827$

Total Arboretum future minimum rental payments

Thereafter

Periods(1)

2019

2020

2021

2022

2023

(1) 2018 rent at $13.46 psf with a 2.5% annual escalator.

Aventura has also established a renewal and replacement reserve funded from a portion of the annual rental payments received from VA529 to cover capital improvements to the building. The reserve funding schedule is set forth below.

Base Reserve Periods Reserve Funding

July 1, 2018 - June 30, 2019 97,937$

July 1, 2019 - June 30, 2020 100,385

July 1, 2020 - June 30, 2021 102,895

July 1, 2021 - June 30, 2022 105,467

July 1, 2022 - June 30, 2023 108,104

July 1, 2023 - June 30, 2024 110,807

July 1, 2024 - June 30, 2025 113,577

July 1, 2025 - June 30, 2026 116,416

July 1, 2026 - June 30, 2027 119,327

July 1, 2027 - June 30, 2028 122,310 8. Long-Term Liabilities

Long-term liabilities include tuition benefits payable and compensated absences.

A. Tuition Benefits Payable

This liability represents the actuarially determined present value of future obligations anticipated for payment of benefits and administrative expenses for Prepaid529.


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B. Compensated Absences

Compensated Absences represent the long-term liability for accrued annual, sick or disability credits, compensatory, overtime, on-call, and other leave for all leave-eligible employees employed on June 25, 2018. Long-term leave liability is further apportioned as current or noncurrent based on whether they are estimated to be due within one year or due greater than one year, respectively.

Changes in long-term liabilities are shown below: Beginning

Balance Increases Decreases Ending BalanceDue Within One

YearCompensated absences 717,787$ 681,554$ 627,532$ 771,809$ 677,111$ Tuition Benefits 2,048,168,035 266,025,107 178,970,716 2,135,222,426 281,415,169 Capital lease obligation * 5,024,654 5,024,654 -

Total 2,065,603,479$ 266,706,661$ 184,622,902$ 2,135,994,235$ 282,092,280$

* Liability previously recorded under a capital lease and modified in fiscal 2018.

9. Capital Assets

The following schedule presents capital asset activity of VA529 for the year ended June 30, 2018.

Balance BalanceEnterprise Fund July 1, 2017 Increases Decreases June 30, 2018Depreciable capital assets:

Equipment $1,713,475 $114,491 - $1,827,966Software 1,038,466 - - 1,038,466Building* 8,800,000 - 8,800,000 -

Total Depreciable capital assets: 11,551,941 114,491 8,800,000 2,866,432

Less accumulated depreciation for:Equipment 1,231,542 169,019 - 1,400,561Software 599,008 103,847 - 702,855Building 1,415,916 238,196 1,654,112 - Total accumulated depreciation 3,246,466 511,062 1,654,112 2,103,416

Net depreciable capital assets 8,305,473 (396,571) 7,145,888 763,014Total net capital assets $8,305,473 ($396,571) 7,145,888 $763,014

*Asset previously recorded under a capital lease and modified in fiscal 2018.

10. Summary of Actuarial Assumptions and Methods

VA529’s statute requires that it annually determine the actuarial soundness of Prepaid529. VA529 has assumed that actuarially sound, when applied to Prepaid529, means that VA529 has sufficient assets (including the value of future installment payments due under current Prepaid529 contracts) to cover the actuarially estimated value of the tuition obligations under those contracts, including any administrative costs associated with those contracts.

The two most significant assumptions used to prepare Prepaid529’s actuarial valuation report and contract pricing are the rates of investment return and future tuition growth. In addition, there are other assumptions the actuary employs in the actuarial valuation and contract pricing. In the summer of 2018, VA529’s Board reviewed the rates of investment return and future tuition growth assumptions and reduced the long-term investment return assumption from 6.25 to 5.75 percent. The Board also reduced the future tuition growth assumption for two-year institutions and community colleges from 6.50 to 6.0 percent, while retaining the


51

future tuition growth assumption for four-year universities at 6.50 percent. The following assumptions were used in the actuarial valuation for June 30, 2018:

Investment Rate of Return: 5.75 percent per annum.

Projected Tuition Increase: The assumed tuition increase rates used in the current year’s valuation are outlined in the table below.

Universities Community Colleges Fall 2019 and thereafter 6.5% 6.0%

Cancellations, Rollovers and Transfers: It is assumed that 0.5 percent of contracts will be cancelled, etc. each year for beneficiaries ages 0 through 17. It is assumed that 5.0 percent of contracts will be cancelled, etc. each year for beneficiaries ages 18 and higher.

Attendance and Bias: It is assumed that of the remaining contracts that will be redeemed to pay for tuition, 76 percent of beneficiaries will attend a public university in Virginia, 7.6 percent will attend a private university in Virginia, 11.4 percent will attend a university in another state, and 5 percent will request a cancellation, transfer, or rollover to a savings plan. Weighted average tuition for four-year public universities and two-year community colleges in Virginia was adjusted with 8 percent and 1 percent loads, respectively, to add a bias for attendance at more expensive schools. The highest tuition for a public university in Virginia was assumed to be 177 percent of weighted average tuition. Out-of-state students are assumed to receive a benefit equal to the payments made on the contract plus interest at the composite reasonable rate of return.

Utilization: It is assumed that participants will begin utilizing their contract at actuarially determined rates, and then redeem up to two semesters of tuition per year until the contract is depleted. While some participants redeem contracts and utilize benefits in the year of expected matriculation, many delay redeeming units until later years.

Expenses: The expenses included in the present value of future obligations are those relating to Annual Maintenance Expense per Contract of $60.74 and Annual Distribution Cost per Contract in Payment Status of $26.89. These expenses were developed by VA529 staff and are assumed to increase annually at the rate of inflation plus 0.5 percent.

The actuarial Prepaid529 contract payments and the actuarial tuition benefits expense line items represent the annual accrual of contract payments receivable and the obligation for distribution expenses determined by the actuarial valuation. At June 30, 2018, the accrual of the actuarially determined Prepaid529 contract payments receivable decreased over the prior year. The decrease in the receivable resulted in negative actuarial Prepaid529 contract payments reported as a reduction in operating revenue. The accrual of the tuition benefits payable increased over the prior year. The increase in the payable resulted in an increase in actuarial Prepaid529 tuition benefit expenses.

2018 2017 ChangePrepaid529 contract payments receivable $194,222,426 $194,568,035 ($345,609)Tuition benefits payable $2,135,222,426 $2,048,168,035 $87,054,391

11. Retirement and Pension Plan

Eligibility

VA529 employees are employees of the Commonwealth of Virginia. VA529 employees participate in one of two defined benefit pension plans or a hybrid retirement plan all of which are administered by the Virginia Retirement System (VRS or System). The first defined benefit plan (Plan 1) includes members who became eligible for VRS prior to July 1, 2010 and vested as of January 1, 2013. Otherwise, Plan 1 is a closed plan. Plan 2 is a defined benefit plan for employees who became eligible on or after July 1, 2010 or whose membership date was before July 1, 2010 but they were not vested as of January 1, 2013. The hybrid retirement plan combines the features of a defined benefit plan and a defined contribution plan and is open to members hired on or after January 1, 2014, as well as other members who were eligible and opted into this plan. Eligibility is determined by the Code of Virginia, as may be amended from time to


52

time. In addition, certain members are eligible for an optional retirement plan (ORP), having service under Plans 1 or 2 and are not eligible to elect the hybrid retirement plan option. Benefits provided

Plans 1 and 2’s members are eligible for benefits based on a formula adjusting for age, creditable service and average final compensation. The hybrid retirement plan contains a similar formula to the defined benefit plans, but incorporates a defined contribution component (DC). The DC element depends on the member and VA529’s contributions made to the plan and the investment performance of those contributions, net of any required fees. Various adjustments to benefit provisions based on Plan are detailed in the VRS annual report found at https://www.varetire.org, clicking on “Publications” and “Comprehensive Annual Financial Report.” Contributions

In general, employees contribute 5 percent (5%) of their compensation each month through a pre-tax salary reduction. VA529 contributes to VRS based on an actuarial determination only for members of Plan 1. For the hybrid retirement plan, mandatory employee contributions are based on a percentage of creditable compensation and matched by VA529. Members may choose to make additional voluntary contributions to the plan and VA529 is required to match those contributions according to specified percentages.

Contribution formulas for active employees are also provided in the Code of Virginia, as amended, but may be adjusted based on funding provided by the General Assembly. For the year ended June 30, 2018, the contribution rate was 13.49 percent of compensation, based on an actuarial valuation as of June 30, 2015. Contributions to VRS totaled $1,005,074 for the fiscal year.

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions

As of June 30, 2018, VA529 reported a liability of $10,526,000 for its proportionate share of the VRS Net Pension Liability (NPL). The NPL was measured as of June 30, 2017 and the total pension liability used to calculate the NPL was determined by an actuarial valuation as of that date. VA529’s proportion of the NPL was based on a projection of VA529’s actuarially-determined long-term share of contributions to the pension plan for the year ended June 30, 2017 relative to the projected contributions of all participating employers and the State. At June 30, 2017, VA529’s proportion of the VRS State Employee Retirement Plan was 0.17742 percent as compared to 0.17215 percent at June 30, 2016.

For the year ended June 30, 2018, VA529 recognized pension expense of $1,167,000 for the VRS. Due to the change in proportionate share from June 30, 2016 to June 30, 2017, a portion of the pension expense relates to deferred amounts from changes in proportion and differences between VA529’s contributions and the proportionate share of employer contributions expected to be amortized in future years.

At June 30, 2018, VA529 reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:


53

Deferred Outflows of Resources

Deferred Inflows of Resources

Differences between expected and actual experience $ 22,000 $ 767,000

Net difference between projected and actual earnings on pension plan investments - -

Change in assumptions 102,000 -

Changes in proportion and differences between Employer contributions and proportionate share of contributions 483,000 - Employer contributions subsequent to the measurement date 1,005,074 -

Total $ 1,612,074 767,000$

VA529 reported $1,005,074 as deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date, which will be recognized as a reduction of the NPL in the year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year ended June 30Pension Expense

FY 2019 (84,000)$ FY 2020 180,000 FY 2021 46,000 FY 2022 (302,000) FY 2023 -

Actuarial Assumptions

The total pension liability in VRS’ actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.5 percent

Salary increases, including inflation 3.5 percent – 5.35 percent

Investment rate of return 7.0 percent, net of pension plan investment expense, including inflation

Mortality rates were based on:

Pre-Retirement: RP-2014 Employee Rates to age 80, Healthy Annuitant Rates to 81 and older projected with Scale

BB to 2020; males set back 1 year, 85% of rates; females set back 1 year.

Post-Retirement: RP-2014 Employee Rates to age 49, Healthy Annuitant Rates at ages 50 and older projected with

Scale BB; males set forward 1 year; females set back 1 year with 1.5% increase compounded from ages 70 to 85.

Post-Disablement: RP-2014 Disability Life Mortality Table projected with scale BB to 2020; males 115% of rates;

females 130% of rates.


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The actuarial assumptions used in the June 30, 2016 valuation were based on the results of an actuarial experience study for the period July 1, 2012 through June 30, 2016. The following adjustments were made as a result of the Study:

Mortality Rates (Pre-retirement, post-retirement healthy, and disabled

Update to a more current mortality table – RP-2014 projected to 2020

Retirement Rates Lowered rates at older ages and changed final retirement from 70 to 75

Withdrawal Rates Adjusted rates to better fit experience at each year age and service through 9 years of service

Disability Rates Adjusted rates to better match experience

Salary Scale No change

Line of Duty Disability Increase rate from 14% to 25%

Long-Term Expected Rate of Return

The long-term expected rate of return on pension plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Arithmetic AverageLong-Term Long-Term

Target Expected ExpectedAsset Class (Strategy) Allocation Rate of Return Rate of Return

Public Equity 40.00% 4.54% 1.82%Fixed Income 15.00% 0.69% 0.10%Credit Strategies 15.00% 3.96% 0.59%Real Estate 15.00% 5.76% 0.86%Private Equity 15.00% 9.53% 1.43%

Total 100.00% 4.80%

Inflation 2.50%Expected arithmetic nominal return 7.30%

Discount Rate

The discount rate used to measure the total pension liability was 7.00 percent. The projection of cash flows used to determine the discount rate assumed that VRS contributions will be made per the Code of Virginia from employers including VA529 at rates equal to the difference between the actuarially determined contributions rates adopted by VRS and the member rate. During the fiscal year ended June 30, 2019, a portion of the rates will be funded by an appropriation from the Commonwealth. Starting on July 1, 2019, the discount rate assumes 100 percent funding by all employers. VRS’s fiduciary net position is projected to be available to make all projected future benefit payments for current active and inactive employees. Therefore, the long-term expected rate of return was applied to all periods of projected benefit payments to determine the liability.


55

Sensitivity of VA529’s Proportionate Share of the Net Pension Liability to Changes in the Discount Rate

The following presents VA529’s proportionate share of the NPL using the discount rate of 7.00 percent, as well as what VA529’s proportionate share of the NPL would be if it were calculated using a discount rate that is one percentage point lower (6.00 percent) or one percentage point higher (8.00 percent) than the current rate:

1.00% Decrease Current Discount 1.00% Increase

(6.00%) Rate (7.00%) (8.00%)

VA529's proportionate share of the

VRS State Employee Retirement

Plan Net Pension Liability 15,548,000$ 10,526,000$ 6,308,000$ Pension Plan Fiduciary Net Position

Detailed information about the VRS’s fiduciary net position is available in the separately issued VRS Comprehensive Annual Financial Report found at https://www.varetire.org selecting “Publications” and “Comprehensive Annual Financial Report.”

Payables to the Pension Plan

As of June 30, 2018, VA529 reported payables to VRS in the amount of $61,240. This amount is comprised of payments due to the VRS that were not made until after the fiscal year end through the normal course of business. 12. Group Life Insurance Program, Virginia Sickness and Disability Plan and State Employee

Health Insurance Credit Program

Eligibility and Plan Descriptions

VA529 employees are employees of the Commonwealth of Virginia and are eligible for programs provided separately from the Virginia Retirement System’s (VRS’s) pension plans but administered by the VRS. The VRS administers the Group Life Insurance Program (GLIP), Disability Insurance Program (Virginia Sickness and Disability Program or VSDP) and the State Employee Health Insurance Credit Program (HICP).

Details as to eligibility, the benefit provisions, and contribution requirements for each of these programs may be found in the VRS annual report found at https://www.varetire.org, clicking on “Publications” and “Comprehensive Annual Financial Report.” The programs and eligibility for each are summarized below.

Group Life Insurance Program: VA529’s full-time, salaried, permanent employees are automatically covered by the GLIP. The GLIP is a defined benefit plan that provides a basic group life insurance benefit. In addition to the basic group life insurance benefit, members are also eligible to elect additional coverage for themselves as well as a spouse or dependent children through the Optional Group Life Insurance Program, which is a separate and fully insured program, and it is not included as part of the GLIP.

Virginia Sickness and Disability Program: VA529’s full-time and part-time, salaried, permanent employees hired on or after January 1, 1999 are automatically covered by the VSDP. The VSDP also covers state employees hired before January 1, 1999 who elected to transfer to VSDP rather than retain their eligibility to be considered for disability retirement. All but one of VA529’s employees participate in the VSDP. The VSDP is a managed care program that provides sick, family and personal leave and short-term and long-term disability benefits for non-work-related and work-related disabilities.

State Employee Health Insurance Credit Program: VA529’s full-time, salaried, permanent employees are automatically covered by the HICP. The HICP is a defined benefit plan that provides a credit toward the cost of health insurance coverage for retired state employees who retire with at least 15 years of service credit. Employees earn one month of service credit toward the benefit for each month they are employed and for which their employer pays contributions to VRS. The health insurance credit is a tax-free reimbursement in an amount set by the General Assembly for each year of service credit against qualified


56

health insurance premiums retirees pay for single coverage, excluding any portion covering the spouse or dependents. The credit cannot exceed the amount of the premiums and ends upon the retiree’s death.

Benefits

Benefits for each of the programs include as follows:

GLIP VSDP HICP The benefits payable under the GLIP include natural death and accidental death benefits and additional benefits provided under specific circumstances. The benefit amounts provided to members are subject to a reduction factor. The benefit amount reduces by 25 percent on January 1 following one calendar year of separation. The benefit amount reduces by an additional 25 percent on each subsequent January 1 until it reaches 25 percent of its original value. For covered members with at least 30 years of creditable service, there is a minimum benefit payable under the GLIP of $8,000. This amount is increased annually based on a cost-of-living adjustment and is currently $8,111.

Leave and short-term disability benefits under the VSDP are paid by the employer. The short-term and long-term disability benefits include income replacement up to certain levels and for certain time periods based on the employee’s disability period and length of service. Long-term disability and long-term care benefits are paid from the VSDP. Depending on the type of long-term benefit received, the employee’s benefit or creditable compensation may be increased annually by an amount recommended by VRS’s actuary and approved by the VRS Board.

The monthly benefit payable to retired VA529 employees under the HICP is $4.00 per year of service per month with no cap on the benefit amount. For VA529 employees who retire on disability or go on long-term disability under the Virginia Sickness and Disability Program, the monthly benefit is $120.00 or $4.00 per year of service, whichever is higher.

Contributions

The contribution requirements for the GLIP, VSDP and HICP are governed by the Code of Virginia, as amended, but may be impacted as a result of funding provided by the General Assembly. Contribution provisions are summarized as follows:

GLIP VSDP HICP The total rate for the GLIP was 1.31 percent of covered employee compensation. This was allocated into an employee and an employer component using a 60/40 split. The employee component was 0.79 percent (1.31 percent X 60 percent) and the employer component was 0.52 percent (1.31 percent X 40 percent). Employers may elect to pay all or part of the employee contribution, however the employer must pay all of the employer contribution. VA529’s contractually required employer contribution rate for the year ended June 30, 2018 was 0.52 percent of covered employee compensation based on an actuarially determined rate from an actuarial valuation as of June 30, 2015. VA529’s contributions were $101,528 for the year ended June 30, 2018.

VA529’s contractually required contribution rate for the VSDP for the year ended June 30, 2018 was 0.66 percent of covered employee compensation. This rate was based on an actuarially determined rate from an actuarial valuation as of June 30, 2015. The actuarially determined rate was expected to finance the costs of benefits payable during the year, with an adjustment to amortize the accrued OPEB assets. VA529’s contributions to the VSDP were $50,835 for the year ended June 30, 2018.

VA529’s contractually required contribution rate for the year ended June 30, 2018 was 1.18% of covered employee compensation. This rate was based on an actuarially determined rate from an actuarial valuation as of June 30, 2015. The actuarially determined rate was expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. VA529’s contributions were $91,582 for the year ended June 30, 2018.


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GLIP OPEB Liabilities, GLIP OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to the GLIP OPEB At June 30, 2018, VA529 reported a liability $593,000 for its proportionate share of the VRS Net GLIP OPEB Liability. The Net GLIP OPEB Liability was measured as of June 30, 2017 and the total GLIP OPEB liability used to calculate the Net GLIP OPEB Liability was determined by an actuarial valuation as of that date. VA529’s proportion of the Net GLIP OPEB Liability was based on VA529’s actuarially determined employer contributions to the GLIP for the year ended June 30, 2017 relative to the total of the actuarially determined employer contributions for all participating employers. At June 30, 2017, VA529’s proportion 0.03944 percent as compared to 0.03906 percent at June 30, 2016.

For the year ended June 30, 2018, VA529 recognized GLIP OPEB expense of $8,000. Since there was a change in proportionate share between measurement dates, a portion of the GLIP OPEB expense was related to deferred amounts from changes in proportion.

At June 30, 2018, VA529 reported deferred outflows of resources and deferred inflows of resources related to the GLIP OPEB from the following sources:

Deferred Outflows Deferred Inflowsof Resources of Resources

Differences between expected and actual experience $ - $ 13,000

Net difference between projected and actual earnings on GLIP OPEB program investments - 22,000

Change in assumptions - 31,000

Changes in proportion 6,000 - VA529 contributions subsequent to the measurement date 101,528 -

Total 107,528$ 66,000$

VA529 reported $101,528 of deferred outflows of resources related to the GLIP OPEB resulting from contributions subsequent to the measurement date, which will be recognized as a reduction of the Net GLIP OPEB Liability in the fiscal year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to the GLIP OPEB will be recognized in the GLIP OPEB expense in future years as follows:

Year ended June 30GLIP OPEB

Expense

FY 2019 (13,000)$ FY 2020 (13,000) FY 2021 (13,000) FY 2022 (13,000) FY 2023 (7,000)

Thereafter (1,000)

VSDP OPEB Liabilities, VSDP Net OPEB Assets, VSDP OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to the VSDP OPEB

At June 30, 2018, VA529 reported an asset of $393,000 for its proportionate share of the Net VSDP OPEB Asset. The Net VSDP OPEB Asset was measured as of June 30, 2017 and the total VSDP OPEB liability used to calculate the Net VSDP OPEB Asset was determined by an actuarial valuation as of that date.


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VA529’s proportion of the Net VSDP OPEB Asset was based on VA529’s actuarially determined employer contributions to the VSDP OPEB plan for the year ended June 30, 2017 relative to the total of the actuarially determined employer contributions for all participating employers. At June 30, 2017, VA529’s proportion was 0.19152 percent as compared to 0.18844 percent at June 30, 2016.

For the year ended June 30, 2018, VA529 recognized VSDP OPEB expense of $32,000. Since there was a change in proportionate share between measurement dates, a portion of the VSDP OPEB expense was related to deferred amounts from changes in proportion.

At June 30, 2018, VA529 reported deferred outflows of resources and deferred inflows of resources related to the VSDP OPEB from the following sources:


Differences between expected and actual experience

Net difference between projected and actual earnings on VSDP OPEB plan investments

Change in assumptions

VA529 contributions subsequent to the

measurement date 50,835 -

Total 50,835$ 64,000$

Changes in proportion - 4,000

$ - $ -

- 31,000

29,000 -

VA529 reported $50,835 as deferred outflows of resources related to the VSDP OPEB resulting from contributions subsequent to the measurement date, which will be recognized as an adjustment of the Net VSDP OPEB Asset in the fiscal year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to the VSDP OPEB will be recognized in VSDP OPEB expense in future years as follows:

Year ended June 30VSDP OPEB

ExpenseFY 2019 (13,000)$ FY 2020 (13,000) FY 2021 (13,000) FY 2022 (13,000) FY 2023 (4,000)

Thereafter (8,000) HICP OPEB Liabilities, HICP OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to HICP OPEB

At June 30, 2018, VA529 reported a liability of $1,025,000 for its proportionate share of the VRS HICP Net OPEB Liability. The Net HICP OPEB Liability was measured as of June 30, 2017 and the total HICP OPEB liability used to calculate the Net HICP OPEB Liability was determined by an actuarial valuation as of that date. VA529’s proportion of the Net HICP OPEB Liability was based on VA529’s actuarially determined employer contributions to the HICP OPEB plan for the year ended June 30, 2017 relative to the total of the


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actuarially determined employer contributions for all participating employers. At June 30, 2017, VA529’s proportion of the HICP was 0.11259 percent as compared to 0.11150 percent at June 30, 2016.

For the year ended June 30, 2018, VA529 recognized HICP OPEB expense of $91,000. Since there was a change in proportionate share between June 30, 2016 and June 30, 2017 a portion of the HICP Net OPEB expense was related to deferred amounts from changes in proportion.

At June 30, 2018, VA529 reported deferred outflows of resources and deferred inflows of resources related to the HICP OPEB from the following sources:


Differences between expected and actual experience $ - $ -

Net difference between projected and actual earnings on State HICP OPEB plan investments

Change in assumptions

Changes in proportionate share

VA529 contributions subsequent to the measurement date 91,582 - Total 99,582$ 14,000$

8,000 -

- 3,000

11,000 -

VA529 reported $91,582 as deferred outflows of resources related to the HICP OPEB resulting from VA529’s contributions subsequent to the measurement date, which will be recognized as a reduction of the Net HICP OPEB Liability in the fiscal year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to the HICP OPEB will be recognized in the HICP OPEB expense in future years as follows:

Year ended June 30HICP OPEB

ExpenseFY 2019 (1,000)$ FY 2020 (1,000) FY 2021 (1,000) FY 2022 (1,000) FY 2023 (2,000)

Thereafter - Actuarial Assumptions

The various total OPEB liabilities were based on an actuarial valuation for all programs as of June 30, 2016, using the Entry Age Normal actuarial cost method and the following assumptions, applied to all periods included in the measurement and rolled forward to the measurement date of June 30, 2017:


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Assumptions Provisions Inflation 2.5 percent

Salary increases, including inflation (General state employees only)

3.5 percent – 5.35 percent

Investment rate of return 7.0 Percent, net of investment expenses, including inflation

Mortality rates: Pre-Retirement RP-2014 Employee Rates to age 80, Healthy

Annuitant Rates to 81 and older projected with Scale BB to 2020; males set back 1 year, 85 percent of rates; females set back 1 year.

Post-Retirement RP-2014 Employee Rates to age 49, Healthy Annuitant Rates at ages 50 and older projected with Scale BB to 2020; males set forward 1 year; females set back 1 year with 1.5 percent increase compounded from ages 70 to 85.

Post-Disablement RP-2014 Disability Life Mortality Table projected with scale BB to 2020; males 115 percent of rates; females 130 percent of rates.

The actuarial assumptions used in the June 30, 2016 valuation were based on the results of an actuarial experience study for the period from July 1, 2012 through June 30, 2016. Changes to the actuarial assumptions as a result of the experience study are as follows:

Assumptions Changes Mortality Rates (Pre-retirement, post

retirement healthy, and disabled) Updated to a more current mortality table – RP-2014

projected to 2020 Retirement Rates Lowered rates at older ages and changed final

retirement from 70 to 75 Withdrawal Rates Adjusted rates to better fit experience at each year age

and service through 9 years of service Disability Rates Adjusted rates to better match experience Line of Duty Disability Increased rate from 14 percent to 25 percent

Long-Term Expected Rate of Return The long-term expected rate of return on the System’s investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of the System’s investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target asset allocation and best estimate of arithmetic real rates of return for each major asset class are summarized in the following table:


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Asset Class (Strategy) Target Allocation

Arithmetic Long-Term Expected Rate

of Return

Weighted Average Long-Term Expected

Rate of Return Public Equity 40.00% 4.54% 1.82% Fixed Income 15.00% 0.69% 0.10% Credit Strategies 15.00% 3.96% 0.59% Real Assets 15.00% 5.76% 0.86% Private Equity 15.00% 9.53% 1.43%

Total 100.00%

4.80% Inflation 2.50% Expected arithmetic nominal return 7.30%

Discount Rate

The discount rate used to measure the various total OPEB liabilities was 7.00 percent, determined as follows:

Program Method GLIP Projection of cash flows used to determine the discount rate assumed that member

contributions will be made per the VRS guidance and the employer contributions will be made at rates equal to the difference between actuarially determined contribution rates adopted by VRS and the member rate.

VSDP Projection of cash flows used to determine the discount rate assumed that employer contributions will be made per VRS guidance and that they will be made in accordance with the VRS funding policy and at rates equal to the actuarially determined contribution rates adopted by VRS.

HICP Projection of cash flows used to determine the discount rate assumed that employer contributions will be made in accordance with VRS guidance at rates equal to the actuarially determined contribution rates adopted by VRS.

Through the fiscal year ending June 30, 2019, a portion of the rates for each of the programs will be funded by an appropriation from the Commonwealth. Starting on July 1, 2019 the discount rate assumes 100 percent funding by all employers / agencies. VRS’s fiduciary net position is projected to be available to make all projected future benefit payments for eligible employees. Therefore the long-term expected rate of return was applied to all periods of projected benefit payments to determine the respective liability.

Sensitivity of VA529’s Proportionate Share of the Net OPEB Liabilities (Asset) to Changes in the Discount Rate

The following table presents VA529’s proportionate share of the net GLIP OPEB liability, net VSDP OPEB asset and net HICP OPEB liability using the discount rate of 7.00 percent, as well as what VA529’s proportionate share of the net GLIP OPEB liability, net VSDP OPEB asset, and net HICP OPEB liability would be if it were calculated using a discount rate that is one percentage point lower (6.00 percent) or one percentage point higher (8.00 percent) than the current rate:

VA529’s proportionate share of the VRS:

1.00% Decrease (6.00%)

Current Discount Rate

(7.00%)1.00% Increase

(8.00%)

GLIP Net OPEB Liability $ 768,000 $ 593,000 $ 452,000

VSDP Net OPEB Asset $ (374,000) $ (393,000) $ (426,000)

HICP Net OPEB Liability $ 1,133,000 $ 1,025,000 $ 931,000


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GLIP, VSDP and HICP Fiduciary Net Position

Detailed information about the VRS GLIP, VSDP and HICP’s fiduciary net positions is available in the separately issued VRS Comprehensive Annual Financial Report found at https://www.varetire.org selecting “Publications” and “Comprehensive Annual Financial Report.”

Payables to the VRS GLIP, VSDP and HICP

As of June 30, 2018, VA529 reported payables to VRS in the amount of $6,217 for GLIP. This amount is comprised of payments due to the VRS that were not made until after the fiscal year end through the normal course of business.

As of June 30, 2018, VA529 reported payables to VRS in the amount of $3,052 for VSDP. This amount is comprised of payments due to the VRS that were not made until after the fiscal year end through the normal course of business.

As of June 30, 2018, VA529 reported payables to VRS in the amount of $5,585 for HICP. This amount is comprised of payments due to the VRS that were not made until after the fiscal year end through the normal course of business.

13. Healthcare Plan for Pre-Medicare Retirees

Eligibility and Plan Description

VA529 employees who retire from state service and receive VRS monthly benefits or periodic benefits from another qualified vendor, and who are not eligible to participate in Medicare because of their age, are eligible to participate in the Pre-Medicare Retiree Healthcare Plan (PMRHP) administered by the Commonwealth’s Department of Human Resource Management (DHRM). For a retiree to participate in the Plan, the participant must be eligible for a monthly annuity from the VRS or a periodic benefit from one of the qualified Optional Retirement Plan (ORP) vendors, and:

be receiving (not deferring) the annuity or periodic benefit immediately upon retirement; have his or her last employer before retirement be the state; be eligible for coverage as an active employee in the State Health Benefits Program until his or

her retirement date (not including Extended Coverage); and, have submitted within 31 days of his or her retirement date an Enrollment Form to his or her

Benefits Administrator to enroll. Benefits

VA529 effectively subsidizes the costs of the participating retirees’ healthcare through payment of its portion of the premiums for active employees.

Contributions

VA529 does not pay a portion of the retirees’ healthcare premium; however, since both active employees and retirees are included in the same pool for purposes of determining health insurance rates. This generally results in a higher rate for active employees.

Total OPEB Liability, OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources

At June 30, 2018, VA529 reported $1,510,217 as VA529’s proportionate share of the PMRHP’s Total OPEB liability. The PMRHP OPEB liability was measured as of June 30, 2017 and was determined by an actuarial valuation as of June 30, 2017. VA529 ’s proportionate amount of the PMRHP OPEB liability was based on each employer’s healthcare premium contributions as a percentage of the total employer’s healthcare premium contributions for all participating employers. At June 30, 2017, VA529’s proportion was 0.11627 percent as compared to 0.11325 percent at June 30, 2016.

For the year ended June 30, 2018, VA529 recognized PMRHP OPEB expense of $127,852.


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At June 30, 2018, VA529 reported deferred outflows of resources and deferred inflows of resources related to PMRHP OPEB comprised of the following elements:

Deferred Outflows of Resources

Deferred Inflows of

ResourcesDifferences between expected and actual experience $ - $ 60,743 Change in assumptions - 320,167 Change in proportion 39,925 -

Subtotal 39,925 380,910 VA529 contributions subsequent to the measurement date

40,049 N/A

Total $ 79,974 $ 380,910

VA529 reported $40,049 as deferred outflows of resources related to PMRHP OPEB resulting from amounts associated with transactions subsequent to the measurement date, which will be recognized as a reduction of the total OPEB liability during the fiscal year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to the PMRHP OPEB will be recognized as part of PMRHP OPEB expense in future years as follows:

Fiscal Year Ended June 30

PMRHP OPEB Expense

2019 $ (62,796)

2020 (62,796)

2021 (62,796)

2022 (62,796)

2023 (62,796)

Thereafter (27,005)

Actuarial Assumptions and Discount Rate

The Total PMRHP OPEB liability was based on an actuarial valuation with a valuation date of June 30, 2017, using the Entry Age Normal actuarial cost method and the following assumptions. DHRM selected the economic, demographic and healthcare claim cost assumptions. DHRM’s actuary provided guidance with respect to these assumptions.


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Assumptions –PMRHP Provisions – PMRHP

Valuation Date Actuarially determined contribution rates are calculated as of June 30, one year prior to the end of the fiscal year in which contributions are reported.

Measurement Date June 30, 2017 (one year prior to the end of the fiscal year)

Amortization Method Level dollar, Closed.

Effective Amortization Period 6.43 years

Projected Salary Increases 4%

Medical Trend Under 65 Medical and prescription drugs: 8.62% to 5.00% Dental: 4.00% Before reflecting excise tax in federal law as of the valuation date.

Year of Ultimate Trend 2025

Mortality: Mortality rates vary by participant status (below).

Pre-Retirement: RP-2014 Employee Rates to age 80, Healthy Annuitant Rates at ages 81 and older projected with Scale BB to 2020; males setback 1 year, 85% of rates; females setback 1 year.

Post-Retirement: RP-2014 Employee Rates to age 49, Healthy Annuitant Rates at ages 50 and older projected with Scale BB to 2020; males set forward 1 year; females setback 1 year with 1.5% increase compounded from ages 70 to 85.

Post-Disablement: RP-2014 Disabled Mortality Rates projected with Scale BB to 2020; males 115% of rates; females 130% of rates.

Discount Rate 3.58%. The discount rate was based on The Bond Buyer’s GO 20Municipal Bond Index as of the measurement date which is June 30,2017.

Changes of Assumptions The following assumptions were updated since the July 1, 2016 valuation based on the results of a Virginia Retirement System actuarial experience study performed for the period of July 1, 2012 through June 30, 2016. Changes to the actuarial assumptions as a result of the experience study are as follows:

Mortality rates -updated to a more current mortality table – RP-2014 projected to 2020 Retirement rates - lowered rates at older ages and changed final retirement from 70 to 75 Withdrawal rates - adjusted rates to better fit experience at each year age and service through

9 years of service

The discount rate was increased from 2.85 percent to 3.58 percent based on The Bond Buyer’s GO 20 Municipal Bond Index. Spousal coverage was reduced from 70 percent to 50 percent based on a blend of recent spousal coverage election rates and the prior year assumption. Based on the 2017 census, new retirees since January 1, 2015 have chosen to cover their spouses approximately 20 percent of the time. However, active employees cover their spouses at a rate close to 53 percent.

Sensitivity of VA529’s Proportionate Share of the Total OPEB Liability to Changes in the Discount Rate and Healthcare Cost Trend Rates

The following presents VA529’s proportionate share of the PMRHP OPEB liability using the discount rate of 3.58 percent, as well as what VA529’s proportionate share of the PMRHP OPEB liability would be if it were calculated using a discount rate that is one percentage point lower (2.58 percent) or one percentage point higher (4.58 percent) than the current rate:


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1.00% Decrease

(2.58%)Current Discount Rate

(3.58%)1.00% Increase

(4.58%)VA529's proportionate share of the total PMRHP liability $ 1,617,787 $ 1,510,217 $ 1,407,153

The following presents VA529’s proportionate share of the PMRHP OPEB liability using a healthcare cost trend rate of 8.62 percent decreasing to 5 percent, as well as what VA529’s proportionate share of the PMRHP OPEB liability would be if it were calculated using a healthcare cost trend rate that is one percentage point lower (7.62 percent decreasing to 4.0 percent) or one percentage point higher (9.62 percent decreasing to 6.0 percent) than the current rate:

1.00% Decrease from Initial Rate of 8.62% decreasing

to 5.00% (7.62% - 4.00%)

Current Healthcare Cost Trend Rate (8.62% - 5.00%)

1.00% Increase from Initial Rate of 8.62% decreasing

to 5.00% (9.62%- 6.00%)

VA529's proportionate share of the total PMRHP liability $1,341,710 $1,510,217 $1,705,413

Payables to the PMRHP

As of June 30, 2018, VA529 reported payables to DHRM in the amount of $81,668 for medical and hospitalization insurance premiums, which includes its proportionate share for PMRHP. This amount is comprised of payments due to the VRS that were not made until after the fiscal year end through the normal course of business

Detailed information about the Commonwealth’s PMRHP is available in the separately issued Commonwealth’s Comprehensive Annual Financial Report found at https://www.doa.virginia.gov/ by selecting “Reports” and “Comprehensive Annual Financial Report.”

14. Risk Management

VA529 is exposed to various risks of loss related to torts; theft or, damage to, and destruction of assets; errors and omissions; non-performance of duty; injuries to employees; and natural disasters. VA529 participates in insurance plans maintained by the Commonwealth of Virginia. The state employee health care and worker’s compensation plans are administered by the Department of Human Resource Management and the risk management insurance plans are administered by the Department of Treasury, Division of Risk Management. Risk management insurance includes property, general liability, faithful performance of duty bond, automobile, and airplanes. VA529 pays premiums to each of these Departments for its insurance coverage. Information relating to the Commonwealth’s insurance plans is available at the statewide level in the Commonwealth of Virginia’s Comprehensive Annual Financial Report.

VA529's information technology disaster recovery site is provided through a co-location agreement. The co-location has a fully equipped network environment as well as multiple direct-access internet feeds necessary to facilitate recovery of mission critical VA529 systems. VA529 also has co-location agreements in place to provide alternate office space for periods of one business day to four weeks in the event that VA529 no longer has access to its primary office facilities.

15. SOAR Virginia

SOAR Virginia is an early commitment scholarship program created to inspire and assist high school students to reach their post-secondary education goals. To participate, eligible students pledge to meet program requirements. In return, participating students receive a range of assistance and accumulate scholarship support up to $2,000 to apply toward their post-secondary education expenses. SOAR Virginia is a unique program created by VA529 to further its mission to make college more affordable and accessible to all Virginians and is offered in partnership with local Virginia college access providers.


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VA529’s Board has funded an Invest529 account in the name of VA529 for the program. Amounts deposited, plus earnings thereon, remain in the account until distributed. Amounts are allocated to students once awarded pursuant to program rules. VA529 will not commit support in excess of amounts on-hand in the SOAR Virginia account. As of June 30, 2018, the SOAR Virginia account had a balance of $10.9 million. During fiscal year 2018, $411,761 was distributed to institutions on behalf of SOAR participants. Details as to the number of students enrolled in the program and amounts committed as of June 30, 2018 are shown below.

Number of

Students Enrolled (1)

Award Amounts Allocated to Enrolled

Students

Additional Awards Enrolled Students May

Receive

Total SOAR Commitment

4,428 $4,852,570 $2,370,500 $7,223,070 (1) Number of students that have completed a SOAR application and pledge, and have been admitted to and are currently enrolled in the program

16. Scholarship Program And Promotional Accounts

The VA529 scholarship program consists of Prepaid529 and Invest529 third party scholarship accounts (excluding SOAR Virginia) established to provide a range of benefits to future beneficiaries. The purpose of the program is to enable individuals, organizations, community groups, corporations, and trusts to make qualified charitable contributions, which are used to purchase Prepaid529 and Invest529 accounts for beneficiaries. VA529’s scholarship program’s mission is to work with community partners to make the dream of college a reality for deserving youth in Virginia.

In addition to scholarship accounts, VA529 awards Prepaid529 or Invest529 promotional accounts that do not specifically qualify as scholarships as defined by federal law. Like scholarship accounts, these accounts are funded by VA529, individuals, organizations, school groups, or other entities.

Active scholarship (excluding SOAR) and promotional accounts at June 30, 2018:

Scholarship Promotional

Program Accounts Value Accounts Value

Invest529 234 $878,575 205 $1,121,807

Prepaid529 20 $318,332 16 $219,461

Prepaid529 value represents the cancellation value of accounts at June 30, 2018 Invest529 value represents the aggregate market value of the investments in the portfolios at June 30, 2018

17. Unrelated Business Income Tax

As a qualified tuition program under IRC §529, VA529 is subject to tax on unrelated business income. VA529 invests in certain agreements and funds that may produce unrelated business income. As such, VA529 may pay taxes on unrelated business income. During fiscal year 2018 VA529 paid no taxes as there was no reportable unrelated business income during the prior fiscal year. VA529 will determine and pay its unrelated business income tax liability, if any, for fiscal 2018 after it receives all Schedule K-1s at the end of calendar 2018.

Required Supplementary Information


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VA529 Pension Liability

2018 2017 2016 2015VA529's Proportion of the Net Pension Liability (Asset) 0.18063% 0.17742% 0.17215% 0.15817%

VA529's Proportionate Share of the Net Pension Liability (Asset)

VA529's Covered Payroll 7,365,537$ 7,061,526$ 6,716,544$ 6,188,569$

VA529's Proportionate Share of the Net Pension Liability (Asset) as a Percentage 142.91% 165.59% 156.93% 143.09% of its Covered Payroll

Plan Fiduciary Net Position as a Percentage 75.33% 71.29% 72.81% 74.28% of the Total Pension Liability

Schedule is intended to show information for 10 years. Since 2018 is the fourthyear for this presentation, only four years available. However,additional years will be included as they become available.

* The amounts presented have a measurement date of the previous fiscal year end.

$11,693,000 $10,540,000 $8,855,000

Schedule of VA529's Share of Net Pension LiabilityVRS State Employee Retirement PlanFor the Years Ended June 30, 2018, 2017, 2016 and 2015*

$10,526,000


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Contributions in

Relation to Contributions

Contractually Contractually Contribution Employer's as a % of

Required Required Deficiency Covered Covered

Contribution Contribution (Excess) Payroll Payroll

Date (1) (2) (3) (4) (5)

2018 1,005,074$ 1,005,074$ -$ 7,812,559$ 12.86%

2017 963,745$ 963,745$ -$ 7,365,537$ 13.08%

2016 964,499$ 964,499$ -$ 7,061,526$ 13.66%

2015 810,765$ 810,765$ -$ 6,716,544$ 12.07%

2014 537,861$ 537,861$ -$ 6,188,569$ 8.69%

2013 496,607$ 496,607$ -$ 5,745,850$ 8.64%

2012 406,968$ 406,968$ -$ 5,594,087$ 7.27%

2011 318,610$ 318,610$ -$ 4,505,956$ 7.07%

2010 427,410$ 427,410$ -$ 4,937,488$ 8.66%

2009 437,497$ 437,497$ -$ 3,905,757$ 11.20%

Schedule of VA529 Contributions

VRS State Employee Retirement Plan

For the Years Ended June 30, 2009 through 2018

Notes to Required Supplementary Information State Retirement Employment Plan

Changes of benefit terms – There have been no actuarially material changes to the System benefit provisions since the prior actuarial valuation. The 2014 valuation includes hybrid retirement plan members for the first time. The hybrid plan applies to most new employees hired on or after January 1, 2014 and not covered by enhanced hazardous duty benefits. Because this is still a fairly new benefit and the number of participants was relatively small, the impact on the liabilities as of the measurement date of June 30, 2017 are not material.

Changes of assumptions – The following changes in actuarial assumptions were made for the VRS plan effective June 30, 2016 based on the most recent experience study of the System for the four-year period ending June 30, 2016:

Mortality Rates (Pre- retirement, post-retirement healthy, and disabled

Update to a more current mortality table – RP-2014 projected to 2020



Disability Rates Adjusted rates to better match experience

Salary Scale No change

Line of Duty Disability Increase rate from 14% to 25%


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VA529 OPEB Liability

Schedule of VA529's Share of Net OPEB LiabilityGroup Life Insurance Program (GLIP)For the Year Ended June 30, 2017*

2017

VA529's Proportion of the Net GLIP OPEB 0.03944%

Liability (Asset)

VA529's Proportionate Share of the Net $ 593,000

GLIP OPEB Liability (Asset)

VA529's Covered Payroll $ 7,061,526

VA529's Proportionate Share of the Net GLIP OPEB Liability (Asset) as a Percentage 8.40% of its Covered Payroll

Plan Fiduciary Net Position as a Percentage

of the Total GLIP OPEB Liability

Schedule is intended to show information for 10 years. Since 2017 is the firstyear for this presentation, only one year of data is available. However,additional years will be included as they become available.


48.86%


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Schedule of VA529 Contributions - GLIPFor the Years Ended June 30, 2009 through 2018

Contributions in Relation to Contributions

Contractually Contractually Contribution Employer's as a % ofRequired Required Deficiency Covered Covered

Contribution Contribution (Excess) Payroll PayrollDate (1) (2) (3) (4) (5)

2018 40,625$ 101,528$ (60,903)$ 7,812,559$ 1.30%2017 38,301$ 95,395$ (57,094)$ 7,365,537$ 1.30%2016 33,895$ 83,516$ (49,621)$ 7,061,526$ 1.18%2015 32,239$ 79,067$ (46,827)$ 6,716,544$ 1.18%2014 29,705$ 72,864$ (43,159)$ 6,188,569$ 1.18%2013 27,580$ 67,981$ (40,401)$ 5,745,850$ 1.18%2012 16,223$ 56,984$ (40,762)$ 5,594,087$ 1.02%2011 12,617$ 53,499$ (40,883)$ 4,505,956$ 1.19%2010 13,331$ 30,122$ (16,790)$ 4,937,488$ 0.61%2009 12,889$ 32,326$ (19,437)$ 3,905,757$ 0.83%

Schedule of VA529's Share of Net OPEB LiabilityHealth Insurance Credit Program (HICP)For the Year Ended June 30, 2017*

2017

VA529's Proportion of the Net HICP OPEB 0.11259%

Liability (Asset)

VA529's Proportionate Share of the Net $ 1,025,000

HICP OPEB Liability (Asset)


VA529's Proportionate Share of the Net HICP OPEB Liability (Asset) as a Percentage 14.52% of its Covered Payroll


of the Total HICP OPEB Liability



8.03%


73

Schedule of VA529 Contributions - HICPFor the Years Ended June 30, 2009 through 2018




2018 92,188$ 91,582$ 606$ 7,812,559$ 1.17%2017 86,913$ 86,879$ 34$ 7,365,537$ 1.18%2016 74,146$ 73,942$ 204$ 7,061,526$ 1.05%2015 70,524$ 69,761$ 763$ 6,716,544$ 1.04%2014 61,886$ 61,137$ 749$ 6,188,569$ 0.99%2013 57,459$ 56,716$ 743$ 5,745,850$ 0.99%2012 78,317$ 56,984$ 21,333$ 5,594,087$ 1.02%2011 4,506$ 53,985$ (49,479)$ 4,505,956$ 1.20%2010 49,375$ 38,312$ 11,063$ 4,937,488$ 0.78%2009 46,088$ 46,011$ 77$ 3,905,757$ 1.18%

Schedule of VA529's Share of Net OPEB LiabilityVirginia Sickness and Disability Program (VSDP)For the Year Ended June 30, 2017*

2017

VA529's Proportion of the Net VSDP OPEB 0.19152%

Liability (Asset)

VA529's Proportionate Share of the Net $ (393,000)

VSDP OPEB Liability (Asset)


VA529's Proportionate Share of the Net VSDP OPEB Liability (Asset) as a Percentage -5.57% of its Covered Payroll


of the Total VSDP OPEB Liability



186.63%


74

Schedule of VA529 Contributions - VSDPFor the Years Ended June 30, 2009 through 2018




2018 51,563$ 50,835$ 728$ 7,812,559$ 0.65%2017 48,613$ 48,260$ 352$ 7,365,537$ 0.66%2016 46,606$ 46,054$ 552$ 7,061,526$ 0.65%2015 44,329$ 43,530$ 799$ 6,716,544$ 0.65%2014 29,086$ 28,664$ 422$ 6,188,569$ 0.46%2013 27,005$ 26,479$ 527$ 5,745,850$ 0.46%2012 1,678$ 36,555$ (34,877)$ 5,594,087$ 0.65%2011 -$ 36,765$ (36,765)$ 4,505,956$ 0.82%2010 49,375$ 38,094$ 11,281$ 4,937,488$ 0.77%2009 69,913$ 70,742$ (829)$ 3,905,757$ 1.81%

Notes to Required Supplementary Information Commonwealth of Virginia GLIP, VSDP, and HICP

Changes of benefit terms – There have been no actuarially material changes to the System benefit provisions since the prior actuarial valuation. Changes of assumptions – The following changes in actuarial assumptions were made effective June 30, 2016 based on the most recent experience study of the System for the four-year period ending June 30, 2016:

Mortality Rates (Pre-retirement, post-retirement healthy, and disabled)

Updated to a more current mortality table – RP-2014 projected to 2020



Disability Rates Adjusted rates to better match experience Salary Scale No change Line of Duty Disability Increased rate from 14% to 25%


75

Schedule of VA529's Share of Total OPEB LiabilityPre-Medicare RetireesFor the Year Ended June 30, 2018*

2018

VA529’s proportion of the collective total OPEB liability 0.11627%

VA529’s proportionate share of the collective total OPEB liability $ 1,510,217

VA529's covered-employee payroll $ 7,812,559

VA529's proportionate share of the collective total OPEB liabilityas a percentage of its covered-employee payroll 19.33%


* The OPEB liability amounts presented have a measurement date of the previous fiscal year end.

Notes to Required Supplementary Information Commonwealth of Virginia State Health Plans Program

for Pre-Medicare Retirees

There are no assets accumulated in a trust to pay related benefits. Changes of benefit terms – There have been no changes to the benefit provisions since the prior actuarial valuation.

Changes of assumptions – The following assumptions were updated since the July 1, 2016 valuation based on the results of a Virginia Retirement System actuarial experience study performed for the period of July 1, 2012 through June 30, 2016. Changes to the actuarial assumptions as a result of the experience study are as follows:

Mortality rates – updated to a more current mortality table – RP-2014 projected to 2020 Retirement rates – lowered rates at older ages and changed final retirement from 70 to 75 Withdrawal rates – adjusted rates to better fit experience at each year age and service through 9

years of service The discount rate was increased from 2.85% to 3.58% based on the Bond Buyer’s GO 20 Municipal Bond Index and spousal coverage was reduced from 70% to 50% based on a blend of recent spousal coverage election rates and the prior year assumption. Based on the 2017 census, new retirees since 1/1/2015 have chosen to cover their spouses approximately 20% of the time. However, active employees cover their spouses at a rate close to 53%.

Supplementary Information


79

ADDITIONAL FINANCIAL INFORMATION

The following schedules provide additional information not included in the Basic Financial Statements:

Appendix A - Mutual Funds by Program

Appendix B - Separate Accounts, Commingled Funds & Alternative Managers by Program

Appendix C – Investment Details by Program

Appendix D – Schedule of Investment Expenses


80

APPENDIX A

Mutual Funds by Program

Investment Manager Fund Name

Aberdeen Asset Management, Inc. Emerging Market Equity FundBlackRock, Inc. T-Fund (Cash and Equivalents)Capital Research & Management Co. American Funds EuroPacific Growth FundDimensional Fund Advisors, LP Emerging Markets Core EquityStone Harbor Investment Partners LP Emerging Market Debt BlendTempleton Institutional Funds, Inc. TIF International Equity SeriesThe Vanguard Group, Inc. Institutional Index Fund

Investment Manager Fund Name

Aberdeen Asset Management, Inc. Emerging Market Equity FundCapital Research & Management Co. American Funds EuroPacific Growth FundDimensional Fund Advisors, LP Emerging Markets Core EquityParnassus Investments Core Equity FundStone Harbor Investment Partners LP Emerging Markets Debt FundTempleton Institutional Funds, Inc. Templeton International Equity SeriesThe Vanguard Group, Inc. Institutional Index FundThe Vanguard Group, Inc. Small Cap Index FundThe Vanguard Group, Inc. Total International Bond Index FundThe Vanguard Group, Inc. Total Stock Market Index FundThe Vanguard Group, Inc. Total Bond Market Index FundThe Vanguard Group, Inc. Total International Stock Index FundThe Vanguard Group, Inc. Inflation-Protected Securities FundThe Vanguard Group, Inc. Real Estate Index Fund

Invest529SM

Prepaid529SM


81

APPENDIX B

Separate Accounts, Commingled Funds & Alternative Managers by Program

Adams Street Partners Private Equity Fund of FundsAdvent Capital Management, LLC Convertible Fixed IncomeAether Investment Partners, LLC Private Equity Fund of FundsAurora Investment Management, LLC Market Neutral Hedge Fund of FundsBlackRock, Inc. Intermediate Corporate BondsBlackstone Alternative Asset Management Market Neutral Hedge Fund of FundsCommonfund Private Equity Fund of FundsDonald Smith & Co. Small Cap Value Domestic EquityFerox Capital, LLP Convertible Fixed IncomeGolub Capital Private DebtHorsley Bridge Partners Private Equity Fund of FundsInvesco Advisers, Inc. Stable Value Fixed IncomeLGT Capital Partners Private Equity SecondariesNeuberger Berman Private Equity Fund of FundsPGIM Fixed Income High-Yield Fixed IncomePrivate Advisors, LLC Private Equity Fund of FundsSchroders Investment Management North America Inc. Mortgage Backed SecuritiesShenkman Capital Management, Inc. Senior Secured Bank LoansState Street Global Advisors Indexed US Inflation Protected SecuritiesThompson, Siegel & Walmsley, LLC SMID Cap Value Domestic EquityUBS Realty Investors, LLC Private Real EstateWellington Management Co., LLP Emerging Market Debt Westfield Capital Management Co., LP SMID Growth Domestic Equity

Blackstone Property Partners Private Real EstateInvesco Advisers, Inc. Stable Value Fixed IncomePGIM Fixed Income High-Yield Fixed IncomeRothschild Asset Management, Inc. SMID Cap Value Domestic EquityUBS Realty Investors, LLC Private Real EstateUnion Bank & Trust FDIC-Insured (Cash & Equivalents)

Invest529SM


82

Asset Class / Strategy Aggregate Fair Value3 % of Total Fund1

Aberdeen Asset Management, Inc. Emerging Market Equity Emerging Market Equity 131,385,365$ 4.83%

Capital Research & Management Co. International Grow th American Funds EuroPacif ic Grow th 132,923,584 4.88%

Dimensional Fund Advisors, LP Emerging Market Equity Emerging Markets Core Equity 67,879,540 2.49%

Donald Smith & Co. Small-Cap Value N/A 65,833,131 2.42%

Templeton Institutional Funds, Inc. International Value TIF International Equity Series 134,989,454 4.96%

The Vanguard Group, Inc. Large-Cap Domestic Blend Institutional Index 94,220,395 3.46%

Thompson, Siegel & Walmsley, LLC Small/Mid-Cap Value N/A 91,184,465 3.35%

Westfield Capital Management Co., LP SMID-Cap Grow th N/A 152,842,305 5.62%

Total Equities 871,258,239 32.01%

Adams Street Partners Private Equity Fund of Funds N/A 116,165,120 4.27%

Aether Investment Partners, LLC Private Equity Fund of Funds N/A 23,571,227 0.87%

Aurora Investment Management, LLC Hedge Fund of Funds N/A 183,490 0.01%

Aventura Holdings, LLC Private Real Estate N/A 8,502,801 0.31%

Blackstone Alternative Asset Management Hedge Fund of Funds N/A 134,547,104 4.94%

Commonfund Private Equity Fund of Funds N/A 18,131,920 0.67%

LGT Capital Partners Private Equity Secondaries 2,054,578 0.08%

Neuberger Berman Private Equity Fund of Funds N/A 15,194,773 0.56%

Private Advisors, LLC Private Equity Fund of Funds N/A 37,154,327 1.36%

UBS Realty Investors, LLC Private Real Estate N/A 63,594,161 2.34%

Total Alternative Investments 419,099,501 15.40%

Advent Capital Management, LLC Convertible Bonds N/A 122,182,542 4.49%

BlackRock, Inc. Intermediate Corporate Bonds N/A 82,746,946 3.04%

BlackRock, Inc.2 Cash Equivalents T-Fund 2,181,054 0.08%

Ferox Capital, LLP Convertible Bonds N/A 76,512,005 2.81%

Golub Capital Private Debt N/A 10,500,000 0.39%

Invesco Advisers, Inc.3 Stable Value N/A 138,664,672 5.09%

PGIM Fixed Income High Yield Bonds N/A 265,425,130 9.75%

Schroders Investment Management, Inc. Mortgage-Backed Securities N/A 92,127,641 3.38%

Shenkman Capital Management, Inc. Senior Secured Bank Loans N/A 247,229,677 9.08%

State Street Global Advisors Inflation-Protected Securities N/A 137,322,525 5.04%

Stone Harbor Investment Partners LP Emerging Markets Debt Blend Emerging Markets Debt & Local Markets 76,225,002 2.80%

Wellington Management Co., LLP Emerging Markets Debt N/A 178,881,790 6.57%

Treasurer of Virginia Cash Equivalents N/A 1,174,466 0.04%

VA529 Transition Account N/A N/A 462,277 0.02%

Total Fixed Income 1,431,635,726 52.60%

2,721,993,466$ 100.00%

Appendix C

Grand Total

Alternative Investments

Fixed Income

Investment Details by Program as of June 30, 2018

Prepaid529SM

Investment Manager Mutual Fund(s) (if applicable)

Equities

1May not sum to 100% due to rounding. 2BlackRock, Inc. operating cash in the amount of $17,269,007 is not included in the total above. 3Stable value assets shown at contract value.


83

Investment Manager Aggregate Fair Value1

Age-Based and Actively Managed Static Balanced Portfolios

Aberdeen Asset Management, Inc. Emerging Markets Equity Emerging Market Equity Fund $61,246,028

Blackstone Property Partners Private Real Estate N/A 38,794,924

Capital Research & Management Co. International Grow th American Funds EuroPacific Grow th 127,771,444

Dimensional Fund Advisors, LP Emerging Market Equity Emerging Markets Core Equity 63,063,718

Templeton Institutional Funds, Inc. International Value Equity Templeton International Equity Series 125,549,220

Invesco Advisers, Inc. Stable Value N/A 1,032,997,159

PGIM Fixed Income High Yield Bonds N/A 124,108,321

Rothschild Asset Management Small/Mid Cap Domestic Equity N/A 82,762,278

Stone Harbor Investment Partners LP Emerging Markets Debt Emerging Market Debt Fund 218,124,508

The Vanguard Group, Inc. Intermediate Core Fixed Income Total Bond Market Index Fund 401,033,353

The Vanguard Group, Inc. Large-Cap Domestic Equity Blend Institutional Index Fund 266,726,500

The Vanguard Group, Inc. Small Cap Domestic Equity Blend Small Cap Index Fund 60,390,836

UBS Trumbull Property Private Real Estate N/A 66,079,698

Total Age-Based Evolving Portfolios 2,668,647,986

Static Portfolios

Parnassus Investments Socially Targeted Large Cap Core Equity Core Equity Fund 51,729,354

The Vanguard Group, Inc. Inflation Protected Securities Inflation-Protected Securities Fund 26,096,269

The Vanguard Group, Inc. U.S. Real Estate Real Estate Index Fund 101,712,661

The Vanguard Group, Inc. Intermediate Core Fixed Income Total Bond Market Index Fund 252,913,255

The Vanguard Group, Inc. International Equity Total International Stock Index Fund 343,587,514

The Vanguard Group, Inc. Domestic Equity Blend Total Stock Market Index Fund 912,060,416

The Vanguard Group, Inc. International Fixed Income Total International Bond Index Fund 85,600,319

Union Bank & Trust FDIC - Insured (Cash & Equivalents) N/A 79,055,201

Total Static Portfolios 1,852,754,989

Grand Total $4,521,402,975

1Cash net of distributions liability held w ith Wells Fargo as w ell as w ith BNY Mellon (custodian) in the amount of $3,717,345 is not included in the total above.

Investment Details by Program as of June 30, 2018

Invest529SM

Asset Class / Strategy Mutual Fund (if applicable)

Appendix C (cont.)


84

APPENDIX D

SCHEDULE OF INVESTMENT EXPENSESFOR THE YEAR ENDING JUNE 30, 2018

Prepaid529 2018Management Fees:

Domestic Equity Managers 2,310,116$ International Equity Managers 3,564,455 Domestic Fixed Income Managers 2,446,156 International Fixed Income Managers 1,596,131 Convertibles Managers 1,503,287 Private Equity Managers 2,620,700Hedge Fund Managers 1,443,280Private Real Estate Managers 994,599Total Management Fees 16,478,723$

Private Investment Performance Fees & Expenses 1,220,787$ Custodial and Other Expenses:

Custodial Fees 560,298$ Legal Fees 8,201Proxy Voting Services 6,084Actuarial Services 66,311Total Custodial and Other Expenses 640,892$

Investment Consulting 145,648$ Total Prepaid529 Investment Expenses 18,486,050$

Invest529 2018

Management Fees:Domestic Equity 987,184$ International Equity 3,003,915Domestic Fixed Income 1,018,184International Fixed Income 1,503,531Diversified Single Funds 601,372Real Estate 1,295,131Total Management Fees 8,409,316$

Custodial and Other Expenses:Custodial Fees 886,703$ Proxy Voting Services 9,616Total Custodial and Other Expenses 896,320$

Investment Consulting 230,224$ Total Invest529 Investment Expenses 9,535,860$

Notes: Custodial, Proxy Voting Services, and Investment Consulting fees are allocated between Invest529 and Prepaid529 based on program Assets Under Management. Manager fees include both those fees that are charged directly on separately managed accounts as well as management fees that are implicit within a pooled vehicle’s net asset value, and therefore do not agree to the face of the financial statements for the Enterprise or Private Purpose Trust Fund.

Other Information

Other Information

87

CollegeAmerica®

CollegeAmerica, a broker-sold IRC §529 college savings option, was launched on February 15, 2002. CollegeAmerica is a defined contribution savings program administered by Capital Research and Management Company, American Funds Distributors, Inc., and American Funds Service Company, Inc. (together, the American Funds) pursuant to a contract. The American Funds acts as program manager and provides all back office and operational services for the program. As a result of this structure, VA529 is responsible for program oversight and review; however, VA529’s staff has minimal day-to-day operational responsibility. VA529 has contracted these services with the American Funds through February 15, 2040.

CollegeAmerica is available year round and has no age or residency restrictions. Accounts are subject to market risk, including the possible loss of principal. As of June 30, 2018, approximately 2.30 million unique active accounts were open with net assets in excess of $64 billion. American Funds defines unique active accounts as unique open account numbers at period end. Fees and expenses of the program are also paid on a pro-rata basis by each account owner and vary according to the fund and share class selected.

During fiscal year 2018, the American Funds College 2036 Fund was added to the CollegeAmerica mutual fund investment options and the American Funds College 2018 Fund was merged into the American Funds College Enrollment Fund to address the continuing evolution of their College Target Date options. As of June 30, 2018, the CollegeAmerica program offered 43 American Funds mutual funds. A complete list of approved and available funds is shown in the tables on the following pages.

A separate audited report for each of the 43 funds available for investment in the CollegeAmerica program is published annually by the American Funds. Each of the funds has a different year ending date, so these audited reports are published throughout the year. An individual fund audit report includes that fund’s results for all share classes offered in the fund, including the IRC §529 share classes created for the CollegeAmerica program. The individual fund reports are available in their entirety from the American Funds. A summary of the 529 Share Class Net Assets as of Fund Fiscal Year End and at June 30, 2018 for each fund are presented in the following charts.

Other Information

88

CollegeAmerica 529 Share Class Net Assets as of Fund Fiscal Year End (dollars and shares in thousands)

Fund Shares Net Assets

Fiscal Year End

Growth funds AMCAP Fund® 72,495 $2,338,823 2/28/18 EuroPacific Growth Fund® 35,980 2,008,123 3/31/18 The Growth Fund of America® 197,781 9,455,590 8/31/17 The New Economy Fund® 16,555 779,488 11/30/17 New Perspective Fund® 57,603 2,466,151 09/30/17 New World Fund® 17,406 1,138,323 10/31/17 SMALLCAP World Fund® 31,114 1,680,918 09/30/17

Growth-and-income funds American Mutual Fund® 28,893 1,179,964 10/31/17 Capital World Growth and Income Fund® 84,493 4,460,847 11/30/17 American Funds Developing World Growth and Income FundSM 4,473 48,829 11/30/17 Fundamental Investors® 51,409 3,192,916 12/31/17 International Growth and Income FundSM 6,201 205,787 6/30/18 The Investment Company of America® 84,242 3,392,758 12/31/17 Washington Mutual Investors FundSM 62,455 2,817,687 4/30/18

Equity-income funds Capital Income Builder® 50,633 3,179,185 10/31/17 The Income Fund of America® 96,945 2,210,749 7/31/17

Balanced funds American Balanced Fund® 185,608 5,030,806 12/31/17 American Funds Global Balanced FundSM 11,200 363,299 10/31/17

Bond funds American High-Income Trust® 44,320 464,580 9/30/17 American Funds Inflation Linked Bond Fund® 2,248 21,923 11/30/17 The Bond Fund of America® 107,662 1,388,063 12/31/17 Capital World Bond Fund® 22,520 449,499 12/31/17 Intermediate Bond Fund of America® 40,785 550,176 8/31/17 Short-Term Bond Fund of America® 46,942 467,206 8/31/17 American Funds Strategic Bond FundSM 2,221 22,531 12/31/17 U.S. Government Securities Fund® 14,832 205,861 8/31/17 American Funds Mortgage Fund® 3,378 34,425 8/31/17 American Funds Corporate Bond Fund®SM 3,043 30,437 5/31/18 American Funds Emerging Markets Bond FundSM 532 5,513 12/31/17

Money market fund American Funds U.S. Government Money Market FundSM 1,587,580 1,587,783 09/30/17

American Funds College Target Date Series funds American Funds College 2021 Fund® 127,694 1,448,766 10/31/17 American Funds College 2024 Fund® 108,292 1,305,911 10/31/17 American Funds College 2027 Fund® 81,193 1,046,490 10/31/17 American Funds College 2030 Fund® 87,678 1,209,827 10/31/17 American Funds College 2033 Fund® 45,665 532,144 10/31/17 American Funds College 2036 FundSM - - American Funds College Enrollment Fund® 37,209 369,316 10/31/17

American Funds Portfolio SeriesSM funds American Funds Global Growth PortfolioSM 18,220 314,986 10/31/17 American Funds Growth PortfolioSM 46,243 833,792 10/31/17 American Funds Growth and Income PortfolioSM 43,422 652,833 10/31/17 American Funds Balanced PortfolioSM 29,998 445,266 10/31/17 American Funds Income PortfolioSM 13,426 169,150 10/31/17 American Funds Preservation PortfolioSM 14,389 142,569 10/31/17

Data compiled from American Funds audited fund statements. Funds listed are those open as of June 30, 2018.

Other Information

89

CollegeAmerica 529 Share Class Net Assets as of June 30, 2018 (dollars and shares in thousands) Fund Shares Net Assets

Growth funds AMCAP Fund® 73,992 $2,401,916 EuroPacific Growth Fund® 37,027 1,951,591 The Growth Fund of America® 204,172 10,821,382 The New Economy Fund® 18,475 876,576 New Perspective Fund® 60,074 2,665,193 New World Fund® 17,799 1,144,307 SMALLCAP World Fund® 32,224 1,831,086

Growth-and-income funds American Mutual Fund® 29,565 1,197,511 Capital World Growth and Income Fund® 87,799 4,443,565 American Funds Developing World Growth and Income FundSM 4,931 49,783 Fundamental Investors® 51,502 3,219,005 International Growth and Income FundSM 6,199 205,708 The Investment Company of America® 83,761 3,370,116 Washington Mutual Investors FundSM 64,476 2,850,282

Equity-income funds Capital Income Builder® 50,811 3,045,170 The Income Fund of America® 96,261 2,180,241

Balanced funds American Balanced Fund® 187,759 5,087,995 American Funds Global Balanced FundSM 12,473 398,498

Bond funds American High-Income Trust® 43,496 441,045 American Funds Inflation Linked Bond FundSM 3,015 29,078 The Bond Fund of America® 109,353 1,372,379 Capital World Bond Fund® 22,633 440,102 Intermediate Bond Fund of America® 43,187 566,617 Short-Term Bond Fund of America® 53,110 520,391 U.S. Government Securities Fund® 2,851 28,337 American Funds Strategic Bond FundSM 14,666 195,981 American Funds Mortgage Fund® 3,576 35,168 American Funds Corporate Bond Fund® 3,118 31,025 American Funds Emerging Markets Bond Fund® 873 8,350

Money market fund American Funds U.S. Government Money Market FundSM 1,811,493 1,811,493

American Funds College Target Date Series funds American Funds College 2021 Fund® 147,200 1,615,601 American Funds College 2024 Fund® 128,933 1,519,617 American Funds College 2027 Fund® 98,467 1,235,472 American Funds College 2030 Fund® 104,717 1,428,854 American Funds College 2033 Fund® 65,508 771,085 American Funds College 2036 FundSM 4,051 41,317 American Funds College Enrollment Fund® 142,149 1,379,181

American Funds Portfolio SeriesSM funds American Funds Global Growth PortfolioSM 23,547 401,928 American Funds Growth PortfolioSM 53,400 1,001,701 American Funds Growth and Income PortfolioSM 48,118 731,715 American Funds Balanced PortfolioSM 34,182 422,784 American Funds Income PortfolioSM 16,414 242,428 American Funds Preservation PortfolioSM 15,867 154,390

Total Assets $64,165,962

Data compiled from American Funds reports. Figures may not sum foot due to rounding.

Other Information

90

CollegeWealth® CollegeWealth is VA529’s FDIC-insured, defined contribution, 529 college savings program, which closed to new participants in fiscal 2017. Each CollegeWealth college savings account with a value up to $250,000 (when combined with any other holdings of an individual at the bank) is FDIC insured. CollegeWealth began in the autumn of 2007 with Union Bank & Trust (UBT) as VA529’s first banking partner. In the autumn of 2009, VA529 added Branch Banking and Trust (BB&T) Corporation as a banking partner in an effort to significantly expand the availability of CollegeWealth within and outside of the Commonwealth. In January 2017, VA529 introduced an FDIC-Insured Portfolio option within the Invest529 program through an omnibus account with UBT. With this offering VA529 terminated the existing CollegeWealth offering through UBT and transferred those remaining assets to the Invest529 FDIC-Insured Portfolio. On April 23, 2017, the CollegeWealth program offered through BB&T was closed to new participants. As of June 30, 2018, there were 11,829 unique active accounts with net assets of $47.9 million remaining in the program. Unique active accounts represent all active accounts at period end. The net assets represented amounts held in savings instruments at the participating banks and were thus not subject to fair market value adjustments at year end.

2,760

5,385

8,203

11,079

13,826

16,306

18,169

15,512

11,829

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017* FY2018

NumberofAccounts

Assets and Accounts Under Management as of Fiscal Year End

AUM

Accounts

* On April 3, 2017, $33.9 million representing 3,350 accounts was transferred from the CollegeWealth offering through Union Bank & Trust to the Invest529 FDIC-Insured Portfolio.

Other Information

91

ABLEnow®

ABLEnow, Virginia’s only IRC §529A savings option open during fiscal 2018, was launched in December 2016. ABLEnow accounts were made possible by the federal Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act, which authorized states to establish tax-advantaged savings programs for individuals with disabilities and their families to save for “qualified disability expenses” without losing certain federal means-tested benefits. The Virginia ABLE Act of the 2015 Virginia Acts of Assembly amended VA529’s enabling legislation, adding the development and implementation of ABLE program(s) to its statutory mission.

ABLEnow is a defined contribution savings program with low-cost, target risk mutual funds (Vanguard Life Strategy Funds) as investment options administered through PNC Bank. VA529 is the program sponsor and manager, providing customer service for the program. VA529 has contracted with PNC Bank, N.A. to offer the ABLEnow program through November 29, 2021. The program offers an online portal to manage accounts and the ABLEnow Card - a debit card providing a simple, convenient way to pay for qualified disability expenses. Eligible individuals can start their ABLEnow account with no enrollment fee and no minimum contribution.

As of June 30, 2018, 3,299 accounts were open with more than $10 million in assets under management. More information on ABLEnow can be found at www.able-now.com.

93

VIRGINIA COLLEGE SAVINGS PLAN N. Chesterfield, Virginia

BOARD MEMBERS As of June 30, 2018

Dr. Edward H. Bersoff, Chairman

Mr. Reggie Samuel, Vice Chairman

Mr. Peter A. Blake

Dr. Glenn DuBois

Mr. William E. Eastburn

Ms. Manju Ganeriwala

Mr. Shawn P. McLaughlin

Ms. Martha M. Mugler

Hon. Walter A. Stosch

Mr. Peter M. Vogt

Mr. David A. Von Moll

CHIEF EXECUTIVE OFFICER

Ms. Mary G. Morris

94

Committee Assignments As of June 30, 2018

Board Members:Hon. Walter A. Stosch, ChairmanDavid A. Von Moll, Vice ChairmanDr. Edward H. Bersoff Peter A. Blake Manju Ganeriwala

Peter M. Vogt

Board Members:Shawn P. McLaughlin, ChairmanDonna M. VanCleave, Vice ChairpersonDr. Edward H. BersoffMartha M. MuglerReggie Samuel

Board Members: Non-Board Members:William E. Eastburn, Vice Chairman Christopher J. Dion, ChairmanDr. Edward H. Bersoff Sheila CorcoranManju Ganeriwala W. Massie Meredith, Jr.Reggie Samuel Liza ScottDavid A. Von Moll

Ex Officio: Mary G. Morris

Audit and Actuarial Committee:

Donna M. VanCleave, permanent designee for Dr. Glenn DuBois

Compensation Committee:

Investment Advisory Committee:

virginia college savings plan annual report

Documents